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UNIVERSITY  OF  CALIFORNIA 
AT  LOS  ANGELES 


UNIVERSITY  of  CALIFORNIA 


UBKAK? 


Digitized  by  the  Internet  Archive 
in  2007 


http://archive.org/details/addressespapersoOOdrydiala 


'W',q/it  Ptit- 


ADDRESSES 

AND    PAPERS   ON 

LIFE     INSURANCE 

AND    OTHER 

SUBJECTS 

BY 

JOHN  F.  DRYDEN 

President  of  The  Prudential  Insurance  Co.  of  America 

and  United  States  Senator  from  New  Jersey 

1902-1907 

NEWARK,   NEW  JERSEY 

THE    PRUDENTIAL    INSURANCE    COMPANY 

OF    AMERICA 

MCMIX 

1 4  S 5  4 Q 


•  •    •*«,••»•     •••• 


THE     PRUDENTIAL     PRESS 


Library 
Hdr 

D6U 


INTRODUCTION 

}he  life  insurance  business  in  the  United 
States  of  to-day  has,  within  a  single  gen- 
eration, attained  to  proportions  wholly 
unanticipated  in  1875,  when  The  Pru- 
dential came  into  existence  as  the  first 
institution  to  transact  Industrial  insur- 
ance in  America.  On  the  thirty-first  of 
December  of  that  year  the  number  of  legal-reserve  Ordinary 
policies  in  force  was  only  about  800,000,  for  the  sum  of 
approximately  $2,016,000,000,  in  contrast  with  25,852,405 
Industrial  and  Ordinary  policies,  for  $14,518,952,277,  in 
force  on  December  31,  1908.  This  enormous  and  commend- 
able progress  has,  in  no  small  measure,  resulted  from  the 
concurrent  development  of  Industrial  insurance,  through 
which  a  vast  number  of  the  American  people  have  learned 
systematic  habits  of  saving  and  have  come  to  realize  the 
unquestionable  value  of  family  protection  through  life  in- 
surance with  legal-reserve  companies.  The  first  Industrial 
insurance  policy  in  America  was  issued  by  The  Prudential 
on  November  10,  1875,  and  out  of  the  most  humble  begin- 
nings Industrial  insurance  has  developed  into  a  social  insti- 
tution of  universal  importance,  making  effectively  for  human 
betterment.  Most  of  the  papers  and  addresses  which  are 
here  reprinted  have  to  do  with  the  inception,  progress,  and 


Introduction 

results  of  Industrial  and  Ordinary  life  insurance.  There  are 
included,  however,  several  papers  on  insurance  economics, 
taxation,  and  supervision  by  the  State  and  Federal  govern- 
ments, and  to  these  have  been  added  a  memorial  address 
on  Abraham  Lincoln  and  my  address  in  the  United  States 
Senate  on  the  Panama  canal. 

The  address  on  "  The  Inception  and  Early  Problems  of 
Industrial  Insurance "  was  contributed  to  the  semi-cen- 
tenary issue  of  The  Insurance  Monitor  in  1905.  The 
limitations  of  space  precluded  adequate  consideration  of  the 
historical  and  biographical  facts  connected  with  the  found- 
ation of  The  Prudential,  emphasis  having  been  placed  upon 
the  social  and  economic  conditions  giving  rise  to  the  success- 
ful development  of  a  new  thrift  institution  in  America. 
For  a  more  extended  account,  however,  the  "History  of 
The  Prudential,"  published  in  1900,  may  be  consulted,  but 
even  in  that  work  only  scant  justice  has  been  done  to  the 
founders  of  the  Company,  who  risked  everything  in  what, 
at  that  time,  was  certainly  a  precarious  venture  in  a  new 
and  untried  field  of  insurance.  It  is  to  be  hoped  that  some 
day  a  full  account  will  be  published,  with  biographical 
details  of  the  early  stockholders,  directors,  and  executive 
officers,  who,  in  hearty  co-operation  and  with  an  abiding 
faith  in  its  future,  made  of  Industrial  insurance  a  practical 
business  success,  a  beneficent  social  institution,  and  of  The 
Prudential  one  of  the  foremost  life  insurance  companies  in 
the  world. 

The  review  of  "A  Quarter  Century  of  Industrial  Insurance 
in  the  United  States"  was  contributed  to  The  Record,  a  New 
York  insurance  periodical,  in  1902.  In  this  address  were 
considered  briefly  the  progress  which  had  been  made  since 
the  founding  of  The  Prudential,  in  1875,  and  the  remark- 
able results  which  had  been  achieved  in  the  face  of  serious 
financial  and  other  difficulties.  After  twenty-five  years  of 
unremitting  effort,  and  by  painstaking  attention  to  matters 


Introduction 

of  minute  detail  of  administration,  the  companies  transact- 
ing Industrial  insurance  had  attained  a  position  where  the 
future  success  of  the  business  was  clearly  beyond  a  ques- 
tion of  reasonable  doubt.  There  were  then  about  eleven 
million  Industrial  policies  in  force  in  the  United  States, 
which,  by  1909,  had  increased  to  nearly  twenty  millions. 
With  pardonable  pride  public  attention  was  directed  to  the 
fact  that  The  Prudential  had  been  honored  by  the  inter- 
national jury  of  the  Paris  Exposition  with  a  gold  medal, 
specifically  conferred  upon  it  in  recognition  of  the  results 
achieved  in  the  Industrial  department,  concluding  with  the 
remark  that  "  to  the  general  public  endorsement  of  In- 
dustrial insurance  as  an  effective  method  of  family  protection 
there  has  thus  been  added  the  unqualified  approval  of  an 
international  jury  of  experts,  not  only  of  life  insurance  as 
such,  but  of  Industrial  life  insurance  in  its  relation  to  public 
welfare  and  social  betterment." 

In  1904  Yale  University  inaugurated  a  course  of  lectures 
on  insurance  before  the  students  of  the  senior  class,  and  to 
this  I  contributed  an  address  on  "  The  Social  Economv 
of  Industrial  Insurance,"  which  was  subsequently  reprinted 
and  widely  distributed.  In  this  address  the  place  of  Indus- 
trial insurance  in  practical  economics  and  the  utility  of  this 
form  of  wage-earners'  protection  as  a  modern  thrift  institu- 
tion were  considered  at  some  length,  emphasis  being  laid 
upon  the  value  of  Industrial  insurance  as  a  preventive  of 
pauperism  and  as  an  effective  aid  in  the  protection  of 
the  family  against  the  ever-present  contingency  of  untimely 
death.  Attention  was  also  directed  to  the  remarkable 
development  of  Ordinary  insurance  through  the  agents 
of  Industrial  insurance  companies,  initiated  successfully 
by  The  Prudential  in  1886.  Perhaps  no  feature  of  the 
business  is  deserving  of  more  thoughtful  and  sympathetic 
consideration  than  the  unquestionable  value  of  Industrial 
insurance    as    a    method   of  teaching   systematic   habits    of 


Introduction 

saving  and  the  value  of  small  but  secure  investments.  The 
conclusions  advanced  were  based  upon  many  years  of  care- 
ful observation  of  the  actual  conditions  under  which  wage- 
earners  progress,  gradually  but  surely,  to  a  higher  and  more 
secure  economic  position ;  and  as  an  aid  in  this  direction  I 
held  that  Industrial  insurance  had  been  of  incalculable  bene- 
fit to  the  nation  at  large. 

During  1906  the  New  Jersey  Legislature  appointed  a 
select  committee  of  the  Senate  to  investigate  life  insurance 
companies.  My  evidence  before  the  committee  included 
an  extended  statement  of  the  practice  of  Industrial  insur- 
ance in  all  its  details  as  gradually  improved  and  perfected 
in  the  course  of  years  and  in  the  light  of  an  increasing  and 
considerable  business  experience.  The  statement  also  con- 
tained observations  upon  the  various  and  many  suggestions 
which  had  been  made  from  time  to  time  for  radical  changes 
and  innovations  in  Industrial  insurance,  and  a  brief  account 
of  post-office  life  insurance  as  practiced  in  England  and  its 
complete  failure  in  actual  experience.  The  review  is 
a  comprehensive  answer  to  practically  every  controversial 
question  raised  in  connection  with  public  discussions  of 
Industrial  insurance,  but,  among  other  points,  reference  was 
made  to  the  insurance  of  children  and  the  fact  that  this 
practice  had  the  official  and  unqualified  approval  of  the 
foremost  insurance  commissioners  and  experts  of  the  period. 
In  my  concluding  remarks  to  the  committee  I  urgently 
suggested  that  they  make  their  investigation  as  exhaustive 
and  complete  as  possible,  so  that  the  disturbed  public  confi- 
dence in  life  insurance  institutions  might  be  fully  restored; 
but,  conscious  of  the  interested,  partial,  and  often  far  from 
honest  motives  attacking  the  business  of  Industrial  insurance, 
I  said: 

"While  we  cordially  welcome  any  impartial  inquiry  into 
our  affairs,  we  have  opposed,  and  we  shall  continue  to  oppose, 
the  unworthy  efforts  of  so-called  reformers  to  cast  discredit 


Introduction 

upon  life  insurance  management  and  methods  in  this  State. 
We  do  not  purpose  to  allow  men  actuated  by  selfish  and  un- 
worthy motives  wilfully  and  recklessly  to  destroy  or  seriously 
to  injure  a  great  and  beneficent  institution,  which  it  has 
taken  us  thirty  years  to  build  up.  But,  for  the  legitimate 
object  of  any  impartial,  comprehensive,  and  qualified  inquiry, 
we  stand  ready  to  meet  any  demands  which  you  may  make, 
furnish  any  facts  which  you  require,  submit  any  record 
which  you  wish  to  inspect,  confident  that,  after  you  have 
completed  your  work,  your  views  will  coincide  with  those  of 
our  policyholders,  that  The  Prudential  has,  from  the  outset 
to  the  present  time,  been  managed  with  rare  skill,  with  abso- 
lute integrity,  and  for  the  best  interests  of  its  millions  of 
policyholders. ' ' 

The  select  committee  fully  accepted  these  views,  and  in 
their  final  report  there  are  no  reflections  upon  the  system  of 
Industrial  insurance,  nor  any  strictures  upon  the  opinion  ex- 
pressed at  the  time,  that  this  form  of  insurance  has  now 
by  experience  been  proven  to  be  the  only  really  successful  and 
effective  form  of  wage-earners'  insurance  in  America. 

The  world-wide  problem  of  an  adequate  provision  for 
the  aged  poor,  as  made  manifest  by  the  many  public  dis- 
cussions of  State  pensions  and  government  and  State 
insurance,  suggested  to  The  Prudential  the  issue  of  a  new 
policy,  adapted  to  the  needs  of  people  of  moderate  means, 
whereby  at  least  a  small  but  absolutely  certain  provision 
could  be  made  for  a  definite  period,  or  for  the  lifetime  of 
dependent  survivors.  The  Prudential  having  commenced 
the  issue  of  Monthly  Income  policies  in  January,  1908, 
upon  the  urgent  request  of  The  American  Underwriter  I 
contributed  to  the  September  issue  of  that  publication  an 
article  on  "A  Method  of  Providing  with  Certainty  for 
Dependent  Old  Age."  Life  insurance  has  its  inherent 
limitations,  and  it  is  out  of  the  question  that  voluntary 
methods  of  insurance  can  ever  approach  in  scope  or  intent  a 


Introduction 

governmental  policy  of  labor  protection  against  widely 
different  contingencies  such  as  are  comprehended  under  the 
German  system  of  compulsory  insurance.  The  economic 
position  of  the  American  nation  would  seem  to  preclude  the 
necessity  for  such  a  policy,  at  least  for  many  years.  Mean- 
while, as  a  much  more  desirable  alternative,  legal-reserve 
life  insurance,  both  Industrial  and  Ordinary,  continues  to 
promote  successfully  the  encouragement  of  thrift  and  secures 
effectively  the  desired  self-protection  against  the  financial 
problems  arising  out  of  the  uncertainties  of  human  life.  If 
life  insurance  is  ever  to  become  a  universal  provident  institu- 
tion, I  am  confident  that  the  Monthly  Income  policy  of  The 
Prudential  will  prove  of  immeasurable  value  in  bringing 
about  the  ultimate  realization  of  this  ideal. 

The  progress  of  American  life  insurance,  as  said  at 
the  outset,  has  not  only  been  remarkable,  but  truly 
astonishing  when  comparison  is  made  with  the  corres- 
ponding progress  in  population,  wealth,  trade,  industry, 
banking,  transportation,  and  other  evidences  of  material 
advancement.  At  the  same  time,  when  the  actual  extent  of 
the  business  of  legal-reserve  life  insurance  is  subjected  to  a 
critical  analysis,  it  is  found  that  there  is  still  a  large  propor- 
tion of  the  population  who  are  not  insured  at  all,  or  who 
are  insufficiently  insured  and  therefore  not  adequately  pro- 
tected against  the  financial  consequences  of  premature  death 
and  dependent  old  age.  In  1908  I  contributed  an  article 
on  "The  Problem  of  the  Uninsured"  to  the  New  York 
Commercial,  in  which  the  number  of  persons  insured  under 
Ordinary  policies  was  estimated  at  four  and  a  half  millions, 
and,  adding  to  this  twelve  and  a  half  million  persons  holding 
Industrial  policies  and  subtracting  half  a  million  of  persons 
estimated  to  hold  both  Industrial  and  Ordinary  policies,  the 
fact  was  brought  out  that  in  an  aggregate  of  nearly  eighty- 
six  millions  of  estimated  population  in  1907,  only  sixteen 
and  a  half  million  persons  were  insured  at  that  time  with 


Introduction 

legal-reserve  life  insurance  institutions.  The  object  was  to 
draw  attention  to  the  vast  opportunities  for  successful  agency 
effort  and  the  corresponding  duty  of  every  insurance  com- 
pany to  bring  the  knowledge  of  life  insurance  beneficence 
home  to  the  people  most  in  need  of  this  form  of  protection. 

A  commercial  enterprise  of  such  magnitude  as  life  insur- 
ance must  necessarily  offer  many  and  attractive  opportu- 
nities as  a  business  career.  In  1903  the  New  York  Tribune* 
with  commendable  enterprise,  published  a  series  of  articles 
on  "Careers  for  the  Coming  Men,"  to  which  I  contributed 
a  brief  address  on  life  insurance  as  a  career.  In  this  article 
an  outline  was  presented  of  the  essential  facts  of  insurance 
as  a  business  from  both  the  office  and  the  field  point  of  view, 
briefly  stating  the  requirements  for  a  successful  career  in  the 
many  departments  into  which  the  business  of  insurance  is 
usually  divided.  My  observations  and  suggestions  were  based 
upon  many  years  of  practical  experience  in  the  administra- 
tion of  a  great  life  insurance  institution  and  upon  a  personal 
knowledge  of  the  success  which  has  been  achieved  by  men 
in  the  office  and  field  administrations  of  The  Prudential. 

The  economic  aspects  of  life  insurance  have  not 
received  extended  consideration  from  American  economists 
and  experts  in  public  finance  and  taxation.  Of  all  the 
grave  and  serious  problems  which  confront  American 
life  insurance  companies  at  the  present  time  there  is  not 
one  that  transcends  in  practical  importance  the  question  of 
taxation.  In  an  address  on  this  subject  delivered  before  the 
Association  of  Life  Insurance  Presidents,  in  1908,  there  was 
presented  for  the  first  time  the  startling  contrast  between  life 
insurance  taxation  in  America  and  in  certain  foreign  countries, 
in  particular  the  German  Empire.  The  annual  tax  burden 
on  American  life  insurance  in  1908  exceeded  eleven  million 
dollars,  equivalent  to  over  two  per  cent,  of  the  premium 
income.  My  plea  was  for  a  systematic  and  thoroughly  well- 
organized  effort  on  the  part  of  all  the  companies,  through 


Introduction 

the  education  of  their  policyholders  and  their  co-operation, 
to  bring  about  on  the  one  hand  a  reduction  in  the  tax  rate 
and  on  the  other  a  well-organized  resistance  to  efforts  on 
the  part  of  the  different  States  to  increase  it.  I  suggested  a 
minimum  average  tax  of  one  per  cent,  of  the  gross  premium 
income,  which  still  would  be  proportionately  very  much 
greater  and  more  of  a  burden  upon  the  policyholders  than 
the  corresponding  taxes  paid  by  life  insurance  companies  in 
Germany.  My  remarks  concluded  with  the  statement  that 
"a  uniform  premium  income  tax  of  one  per  cent,  would  be 
a  practical  working  basis  which  would  more  than  repay  the 
States  for  their  supervision  and  protection,  and  would 
materially  decrease  the  cost  of  life  insurance  to  the  millions 
of  American  policyholders."  Acting  upon  the  suggestion, 
a  committee  of  the  Association  was  appointed,  with  instruc- 
tions to  devise  methods  and  means  by  which  the  suggestion 
could  be  carried  into  practical  effect. 

Closely  related  to  the  problem  of  over-taxation  is  the 
equally  serious  problem  of  over-legislation  and  over-super- 
vision of  insurance  companies  in  the  United  States.  For 
more  than  forty  years  the  subject  of  Federal  regulation  of 
insurance  has  been  a  matter  of  public  discussion,  and  as 
early  as  1868  a  bill  had  been  introduced  into  Congress 
providing  for  the  supervision  of  life  insurance  companies 
by  the  Federal  government.  The  bill  introduced  did  not, 
however,  become  a  law,  and  subsequent  efforts  in  this  direc- 
tion proved  equally  barren  of  practical  results.  After  my 
election  to  the  United  States  Senate,  in  1902, 1  naturally  took 
an  active  interest  in  this  question,  to  which  I  had  given  much 
attention  from  the  very  outset  of  my  connection  with  the 
business  of  insurance.  From  time  to  time  the  urgency  of 
Congressional  action  had  been  brought  to  my  attention  by 
high-minded  and  absolutely  disinterested  men,  but  on  careful 
consideration  of  their  proposed  measures  it  seemed  to  me 
that  a  still  more  comprehensive  statute  could  be  framed,  one 

8 


Introduction 

which,  if  ultimately  submitted  to  the  United  States  Supreme 
Court  for  a  decision  as  to  its  constitutionality,  would  not  be 
found  wanting.  The  bill  which  I  introduced  in  the  Senate 
aimed  specifically  at  a  thorough  method  of  supervision 
which  would  do  away  with  the  endless  and  costly  multiplica- 
tion of  supervising  duties  on  the  part  of  the  insurance  de- 
partments of  the  different  States.  At  the  same  time,  the 
bill  provided  for  a  material  increase  in  the  power  and  control 
of  the  government  over  the  companies  engaged  in  interstate 
business,  to  secure  on  the  one  hand  a  larger  amount  of 
publicity,  and  on  the  other  a  more  rigid  adherence  to  well- 
framed  statutory  requirements.  The  bill  was  modeled  as 
nearly  as  possible  on  the  line  of  the  national  banking  act, 
which  for  more  than  forty  years  had  been  found  eminently 
successful,  and  all  the  other  legislation  extending  the  power  of 
the  Federal  government  over  corporations  engaged  in  inter- 
state commerce  was  taken  into  consideration.  The  object 
and  scope  of  the  bill  was  fully  explained  in  an  address  on 
"The  Regulation  of  Insurance  by  Congress,"  before  the 
Boston  Life  Underwriters'  Association  in  1904,  and  the 
subject  was  subsequently  amplified  in  an  address  on  "The 
Commercial  Aspects  of  Federal  Regulation,"  delivered  at  the 
annual  meeting  of  the  Newark  Board  of  Trade  on  January 
18,  1906.  The  first-mentioned  address  included  much  histor- 
ical matter  pertaining  to  the  various  efforts  made  to  enact 
a  Federal  statute  for  the  national  supervision  of  life 
insurance  companies,  while  the  second  presented  figures 
and  facts  to  prove  that  the  bill  was  demanded  by 
the  commercial  interests  of  the  nation  at  large.  I  had 
taken  pains,  through  extensive  correspondence  with  com- 
mercial bodies,  banks,  merchants,  policyholders,  and  others, 
to  secure  an  impartial  expression  of  public  sentiment, 
and  that  expression  was  not  only  emphatically  and 
unequivocally  in  favor  of  Federal  regulation,  but  it 
equally    endorsed    my    point    of   view    that   insurance,    by 


Introduction 

modern  conceptions,  is  an  element  of  commerce,  and  as 
such  is  within  the  meaning  of  the  commerce  clause  of  the 
Constitution.  While  these  efforts  to  secure  the  passage  of  the 
bill  mentioned  were  unsuccessful,  largely  because  of  the 
disturbed  state  of  the  public  mind  on  all  matters  pertaining 
to  insurance,  resultinp-  from  disclosures  in  the  New  York 
insurance  investigation,  I  am  confident  that  it  is  only  a 
question  of  time  when  the  interstate  business  of  our  insurance 
companies  will  be  made  subject  to  the  effective  regulation 
and  control  of  the  Federal  government. 

The  most  important  national  question  which  required  con- 
sideration during  my  term  in  the  United  States  Senate  was  the 
final  type  of  the  Panama  Canal.  As  a  member  of  the  Senate 
Committee  on  Isthmian  Affairs,  I  had  an  exceptional  oppor- 
tunity to  become  thoroughly  familiar  with  both  sides  of  the 
controversy  regarding  the  type  of  canal,  and  I  became  con- 
vinced, after  mature  consideration,  that  a  lock  canal  would  be 
decidedly  more  advantageous  to  the  nation.  I  participated  in 
the  debate  on  the  question  by  the  address,  reprinted  in  this  vol- 
ume, on  "The  American  Type  of  Isthmian  Canal."  In  the 
meantime  the  controversy  has  been  revived,  but  it  is  fortunate 
that  we  have  in  Mr.  Taft  a  President  thoroughly  familiar  with 
both  the  theory  and  the  facts  of  the  whole  problem,  so  that 
there  need  be  no  apprehension  that  the  plans  for  a  lock 
canal  will  be  changed  to  the  more  costly  and  less  feasible 
sea-level  proposition.  I  quote  in  this  connection  from  a  re- 
cent article  by  President  Taft,  which,  better  than  any  words 
of  mine,  defines  the  issue  confronting  the  American  people: 

"The  facts  to-day  are  the  same  as  they  were  when  the  lock  type  was 
adopted,  namely,  that  it  would  take  at  least  $200,000,000  more  of  money  and  at 
least  five  years  more  of  time  to  construct  the  sea-level  type  of  canal  150  to  200 
feet  in  width  ;  that  the  canal  when  constructed  would  be  dangerous  for  the 
passage  of  the  larger  vessels  ;  and  that  the  lock  type  of  canal  constructed  at 
$200,000,000  less  in  cost  and  five  years  less  in  time  will  be  a  better  canal,  a  safer 
canal,  and  one  in  which  the  time  of  passage  for  large  vessels  will  be  even  less 
than  in  the  sea-level  type.  .  .  Meantime  the  canal  will  be  built  and  com- 
pleted on  or  before  the  first  of  January,  1915,  and  those  who  are  now  its  severest 
critics  will  be  glad  to  have  their  authorship  of  recent  articles  forgotten." 

IO 


Introduction 

No  facts  have  been  brought  to  my  attention  which  would 
warrant  a  material  change  of  view  on  this  important  subject, 
and  I  am  more  than  ever  convinced  that  the  only  practical 
and  feasible  project  for  an  Isthmian  canal  is  the  one  to  which 
the  nation  is  deliberately  committed — an  American  project 
based  upon  the  opinion  and  experience  of  American  engineers. 

The  short  address  on  Abraham  Lincoln  and  Alexander 
Hamilton,  delivered  before  the  East  Orange  (N.  J.)  Republi- 
can Club  on  the  ninty-sixth  anniversary  of  Lincoln's  birthday, 
February  12,  1904,  is  included  as  a  permanent  evidence  of 
my  profound  respect  for  both  Lincoln  and  Hamilton  as  the 
foremost  types  of  American  ideals  in  constructive  statesman- 
ship. A  lifelong  Republican  and  a  firm  believer  in  party 
government  and  party  responsibility,  my  course  in  public  life 
has  been  so  profoundly  influenced  by  the  teachings  of  these 
two  men  that  it  seems  proper  to  give  permanent  expression 
to  my  appreciation  in  this  volume.  It  is  not  generally  known 
that  Alexander  Hamilton  was  the  first  to  express  the  opinion 
that  the  regulation  of  insurance  was  within  the  meaning  of 
the  commerce  clause  of  the  Constitution,  and  to  a  not 
inconsiderable  extent  my  views  on  this  subject  have  been 
influenced  by  the  argument  of  Hamilton  in  defending  the 
constitutionality  of  the  United  States  Bank.  The  same 
fundamental  principles  that  make  for  enduring  results  in 
statecraft  apply  to  the  administration  of  business,  and  the 
influence  of  Lincoln  and  Hamilton  on  the  acts  of  my  public 
life  has  extended  to  the  conduct  of  the  great  institution  which 
I  had  the  honor  and  privilege  to  establish  in  1875,  under  the 
name  of  The  Prudential  Friendly  Society,  which  was  sub- 
sequently changed  to  The  Prudential  Insurance  Company 
of  America.  Social  institutions,  like  political  institutions, 
can  endure  only  if  there  is  economic  justification  for  their 
existence,  and  if  they  prove  their  social  utility  by  successful 
adaptation  and  re-adaptation  to  the  ever-changing  condi- 
tions and  circumstances  of  political  and  social  life.     As  far 

11 


Introduction 

as  it  has  been  within  my  power  I  have  tried  to  carry  this 
conviction  into  effect  in  every  important  act  of  my  public 
and  business  life,  and  the  following  addresses  and  papers 
are,  in  a  measure,  a  permanent  record  of  what  I  have  done 
and  have  tried  to  do  to  realize  the  aims  and  ideals  of  my 
earlier  years. 


Bernardsville,  N.  J. 
October  13,  1909. 


12 


CONTENTS 

Chapter  Page 

Introduction i 

I.  The  Inception  and  Early  Problems  of  Indus- 
trial Insurance 19 

II.  The  First  Quarter  Century  of  Industrial 

Insurance  in  the  United  States  ....     47 

III.  The  Social  Economy  of  Industrial  Insur- 

ance       65 

IV.  The  Practice  of  Industrial  Insurance     .     .     85 

V.  A  Method  of  Providing  with  Certainty  for 

Dependent  Old  Age 121 

VI.  The  Problem  of  the  Uninsured 133 

VII.  Life  Insurance  as  a  Career 145 

VIII.  The   Taxation    of    Life    Insurance   in  the 

United  States 161 

IX.  The  Regulation  of  Insurance  by  Congress  175 

X.  The  Commercial  Aspects  of  Federal  Regu- 
lation of  Insurance 201 

XI.  The  American  Type  of  Isthmian  Canal    .     .  219 

XII.  Abraham  Lincoln  and  Alexander  Hamilton  277 

Appendix 289 

Index 317 


J5 


Chapter    I 


THE   INCEPTION 

AND   EARLY  PROBLEMS   OF 

INDUSTRIAL  INSURANCE 


PUBLISHED     IN 
THE     INSURANCE     MONITOR 

1903 


THE 

INCEPTION   AND   EARLY   PROBLEMS 

OF   INDUSTRIAL   INSURANCE 

he  semi-centenary  of  the  Insurance  Monitor 
[suggests  a  brief  review  of  the  inception  and 
early problemsof  Industrial  insurance, which 
may  be  said  to  have  come  into  existence  in 
England  in  1853,  as  the  result  of  a  pointed 
■reference  in  a  parliamentary  report  on  assur- 
ance associations.*  This  report,  dealing  with 
the  difficulties  and  shortcomings  of  the  life  insurance  com- 
panies of  the  period,  had  called  attention  to  the  great 
need  of  the  industrial  population  for  a  more  adequate 
and  secure  method  of  life  insurance  than  had  hitherto 
been  furnished  by  the  burial  clubs  and  friendly  societies. 
These  societies  had  gradually  increased  in  number,  and  their 
membership  in  1850  was  estimated  at  three  millions,  but, 
however  useful  and  sound  as  social  institutions,  making  for 
social  betterment  and  promoting  human  intercourse,  from  an 
insurance  point  of  view  they  were  indeed  in  a  most  unfortu- 
nate predicament.  Social  in  their  origin,  these  societies  had 
in  the  course  of  years  assumed  the  character  of  mutual  as- 
surance societies,  which,  in  addition  to  their  philanthropic 
objects,  assured  to  their  members  a  sum  certain,  payable  in 
case  of  sickness,  incapacity  in  old  age,  or  death.  Organized 
almost  exclusively  by  workingmen  not  familiar  with  mathe- 
matics or  vital  statistics,  the  benefits  offered  to  members 
were  invariably  out  of  proportion  to  the  periodical  payments 
exacted  in  return,  and  less  than  a  generation  was  usually  suf- 
ficient to  bring  a  society  into  bankruptcy,  with  resulting  un- 
told misery  and  unhappiness  to  the  surviving  membership. 
Yet  so  despotic  is  custom  and  so  ready  is  the  average  man  to 

*  Report  from  the  Select  Committee  on  Assurance  Associations,  London,  1853,  p.  6. 

19 


Life  Insurance  and  Other  Subjects 

pay  for  his  own  experience,  that,  regardless  of  the  failure  of 
the  old, new  societies,  with  but  slightly  improved  tables,  would 
be  formed  to  take  their  place;  a  common  indifference  to  the 
fact  that  "There  is  no  rule  in  moral  mathematics  that  can 
convert  three  times  three  shillings  into  fifteen." 

The  management  of  the  Prudential  Mutual  Assurance, 
Investment  and  Loan  Association,  a  company  organized  in 
1848  for  the  transaction  of  Ordinary  business,  took  notice 
of  the  recommendation  of  the  Parliamentary  Commission, 
and  in  the  year  following,  that  is,  1854,  commenced  the  issue 
of  Industrial  policies,  or  of  contracts  for  small  amounts  of 
insurance  with  premiums  payable  weekly  and  collected  from 
the  houses  of  the  insured.*  The  necessary  tables  of  pre- 
miums were  framed  with  exceptional  actuarial  skill,  every 
phase  of  the  subject  was  carefully  inquired  into,  and  so  well 
was  the  preliminary  work  done  that  even  now,  after  fifty 
years,  Industrial  insurance  principles  and  practice  in  all 
essentials  conform  to  the  original  conception  of  the  managers 
of  the  Prudential  in  1854.  If  want  of  security  had  been 
the  chief  defect  of  the  old  system  of  workingmen's  insurance, 
the  new  system  was  developed  in  accordance  with  established 
laws  of  mortality  and  finance;  and  while  failure  had  been 
the  rule  in  the  old,  security  for  the  payment  of  the  contract- 
ual obligations  was  made  the  cornerstone  of  the  new. 

The  first  ten  years  of  the  history  of  the  Prudential  Assur- 
ance Company  (this  title  having  been  adopted  in  1861)  form 
a  most  interesting  chapter  in  the  wonderful  story  of  life  insur- 
ance. In  the  face  of  much  opposition  and  open  hostility, 
the  company  carried  forward  its  plan  of  extending  real  life 
insurance  to  the  masses,  in  active  competition  with  a  primi- 
tive but  slowly  passing  type  of  organization.  By  January  1, 
1864,  it  was  evident  to  the  careful  observer  that  Industrial 
insurance  in  England  had  come  to  stay.  The  income  of  the 
company  was  about  sixty  thousand  pounds,  which  for  the  time 

*  History  of  the  Prudential  Assurance  Company,  London,  1880,  p.  3. 

20 


Early  Problems  of  Industrial  Insurance 

was  a  very  considerable  sum,  and  it  required  no  special  in- 
sight or  discernment  to  anticipate  a  time  when  the  new  form 
of  thrift  would  become  general  and  include  the  larger  part 
of  the  whole  population.  The  secret  of  success  was  simple 
enough — the  company  made  no  promise  which  it  could  not 
keep,  and  when  policies  became  claims  they  were  promptly 
paid. 

Only  occasional  references  to  the  epoch-making  experience 
of  the  English  Prudential  are  met  with  in  American  insur- 
ance periodicals  of  this  period.  The  Insurance  Monitor,  in 
i860,  had  called  attention  to  the  need  of  life  insurance  protec- 
tion for  the  poor,  but  without  advancing  a  definite  plan  by 
which  this  much-to-be-desired  end  could  be  attained.  Two 
events,  however,  occurred,  which  brought  the  name  and  success 
of  the  London  company  quite  prominently  to  the  notice  of  the 
American  insurance  managers  and  others  interested  in  the 
development  of  life  insurance  in  this  country.  A  prominent 
London  company,  the  International,  which  for  some  years 
had  been  transacting  business  in  Massachusetts,  found  itself 
in  difficulties  with  the  Insurance  Commissioner,  Mr.  Elizur 
Wright,  who  insisted  on  determining  its  solvency  by  means 
of  a  net  valuation  of  its  liabilities.  By  this  method  the  com- 
pany was  found  insolvent,  and  after  a  very  animated  con- 
troversy, in  which  some  of  the  ablest  actuaries  of  both 
countries  participated,  it  retired  from  business,  the  English 
portion  of  its  outstanding  policies  being  reinsured  with  the 
Prudential  of  London. 

The  controversy,  as  such,  but  in  particular  Mr.  Wright's 
critical  review  of  British  life  insurance  methods,  in  his  annual 
report  for  1865  and  subsequent  years,  did  much,  if  not  most, 
to  draw  attention  to  the  wonderful  success  of  the  Prudential, 
and  to  the  curious,  but  extremely  interesting,  opposition 
to  the  company  by  the  Chancellor  of  the  Exchequer, 
Mr.  Gladstone.  While  as  early  as  1773  attempts  had  been 
made  to  induce  the   British  government  to  undertake  the 


21 


Life  Insurance  and  Other  Subjects 

business  of  life  insurance,  it  was  not  until  1853  that  an  actual 
effort  was  made  in  this  direction.*  No  practical  results  had 
followed,  however,  and  during  the  eleven  years  ending  with 
1864  not  a  single  proposal  had  been  received.  The  almost 
instantaneous  success  of  the  post-office  savings  banks,  how- 
ever, which  had  been  established  in  1861  to  take  the  place 
of  private  institutions  in  a  more  or  less  insolvent  condition, 
led  Mr.  Gladstone  to  assume  the  possibility  of  a  corres- 
ponding opening  for  government  life  insurance.  Accord- 
ingly, after  much  thought  and  in  the  face  of  a  strong  opposi- 
tion, a  measure  was  carried  and  became  a  law  in  1864,  by 
which  it  was  made  possible  to  secure  small  policies  through 
the  post-office.  In  the  parliamentary  debates  Mr.  Glad- 
stone made  numerous  and  occasionally  very  bitter  attacks 
on  the  Prudential,  its  managers  and  methods,  going  so  far 
as  to  allege  its  insolvency.  The  Prudential,  in  its  own  de- 
fense, employed  eminent  actuaries  to  report  on  its  actual 
condition,  with  the  result  that  the  charges  of  the  great  Chan- 
cellor were  proven  unfounded.  Mr.  Elizur  Wright  seems 
to  have  taken  a  keen  interest  in  this  controversy,  for  in  his 
report  for  1865  he  comments  at  length  upon  the  measure, 
giving  Mr.  Gladstone's  plan  his  hearty  endorsement. 
Himself  a  strong  advocate  of  government  supervision  of  in- 
surance interests,  he  readily  agreed  with  Mr.  Gladstone,  and 
suggested  a  corresponding  system  of  life  insurance  by  the 
government  of  the  United  States,  f 

With  the  highest  respect  for  the  ability  of  both  Mr. 
Gladstone  and  Mr.  Wright,  the  earnest  and  disinterested 
student  of  life  insurance  problems  cannot  very  well  rest  con- 
tent with  a  one-sided  presentation  of  the  facts  in  the  case. 
The  Industrial  companies  had  gained  the  confidence  of  the 
public,  and  the  new  business  of  the  Prudential  during  1863 
alone  had  reached  sixty-eight  thousand  policies.    It  requires  a 

*  On  the  Financial  Statistics  of  British  Government  Life  Annuities  by  Frederick  Hendriks,  Lon- 
don, 1856. 

t  Tenth  Annual  Report  of  the  Insurance  Commissioner  of  Massachusetts,  Boston,  1865,  part  II, 
pp.  49-51. 

22 


Early  Problems  of  Industrial  Insurance 

careful  reading  of  the  parliamentary  debates  of  the  sessions  of 
1864  and  1865,  and  some  knowledge  of  the  dissertations  and 
fugitive  essays  of  writers  of  the  period  on  government  life 
insurance  in  its  inception,  to  bring  the  proposed  measure  into 
clear  relief  as  an  uncalled-for  interference  with  private  enter- 
prise and  with  the  normal  development  of  a  social  institution 
of  great  magnitude.  It  is  now  some  thirty-seven  years,  and 
the  results  attained  by  the  two  different  forms  of  thrift  insti- 
tutions can  be  brought  in  contrast  with  each  other.  By 
January  1,  1902,  the  Industrial  companies  of  England  had 
some  twenty-one  million  policies  in  force,  in  contrast  to  about 
fifteen  thousand  policies  in  force  with  the  government  post- 
office.  Or,  in  other  words,  to  every  one  policy  in  force  with 
the  government,  some  fourteen  hundred  policies  are  in  force 
with  private  companies.  It  is  this  fact  which  speaks  and 
which  makes  further  comment  unnecessary.* 

The  attack  on  the  London  Prudential  and  its  business 
methods,  however,  had  been  rather  incidental  to  the  general 
purpose  of  the  government  to  enter  the  life  insurance  busi- 
ness on  the  largest  possible  scale.  As  pointed  out  by  Mr. 
Gladstone,  the  field  of  life  insurance  for  the  masses  was  not 
occupied  by  sound  institutions,  nor  yet  by  sound  and  unsound 
institutions,  and  such  was  the  enormous  breadth  of  the  field 
that  apparently  the  government  alone  could  be  expected  to 
do  justice  to  the  vast  interests  involved. "j*  The  Monitor,  in 
1864,  in  commenting  on  the  Gladstone  measure,  called  at- 
tention to  the  grounds  for  such  interference  in  the  interest 
of  the  regular  life  companies  by  the  statement  that,  "In  no 
single  department  of  business  has  there  been  so  much  jug- 
glery and  so  much  false  pretension  as  in  life  insurance." 
Thus  confronted  by  government  opposition  and  competition 
on  the  one  side  and  general  public  distrust  in  life  insurance 
on  the  other,  the  Prudential  of  London  continued  to  develop 
its  business,  and  the  reports  for  each  succeeding  year  bear 

*  On  December  31,  1908,  the  Prudential  of  London  had  17,963,127  Industrial  policies  in  force, 
t  History  of  the  Prudential  Assurance  Company,  p.  22  et  seq. 

23 


Life  Insurance  and  Other  Subjects 

evidence  of  superior  administration  and  an  increasing  public 
demand  for  Industrial  insurance. 

The  publicity  given  to  all  of  the  more  important  facts  con- 
nected with  the  early  development  of  Industrial  insurance 
in  England,  but  in  particular  to  the  business  of  the  Pruden- 
tial, brought  the  subject  more  and  more  to  the  attention  of 
the  general  public.  With  unusual  frankness,  the  London 
company  had  from  time  to  time  published  a  statement  of  its 
affairs,  and  the  annual  reports  of  the  directors  contained 
much  interesting  information  regarding  the  rapidly  extend- 
ing Industrial  business.  The  progress  of  the  company  since 
1865  had  indeed  been  phenomenal,  and  the  income  by  1869 
was  more  than  double  the  income  of  1864.  The  report  for 
1869  quite  properly  concludes  with  the  statement  that  "The 
establishment  of  this  branch  has  been  attended  with  the 
happiest  results  to  the  classes  for  whom  it  was  especially 
designed;  the  great  uncertainty  which  prevailed  with  regard 
to  the  stability  of  local  institutions  and  the  defective  averages 
which  they  afforded  (leading  to  very  disastrous  consequences) 
have  now  been  replaced  by  a  wide-spread  and  almost  un- 
bounded confidence  in  the  institution  which  has  been  the 
means  of  affording  to  the  poor  man  the  advantages  hitherto 
only  attainable  by  the  comparatively  well-to-do."  But  the 
company  was  as  yet  only  in  the  infancy  of  its  wonderful 
career. 

Commenting  on  the  astonishing  results  attained  in  Eng- 
land by  so  simple  and  yet  effective  a  method  of  life  insur- 
ance, the  Exchange  and  Review  of  Philadelphia  in  1868  had 
well  said :  "The  adaptation  of  life  insurance  to  the  convenience 
of  the  working  classes  is  an  idea  whose  practical  and  true  de- 
velopment in  the  United  States  is  as  yet  in  embryo,  but  without 
doubt  the  penny  of  the  poor  man  is  to  have  its  place  in  life  in- 
surance accumulations,  as  well  as  the  dollar  of  the  capitalist." 
The  times  were  peculiarly  suggestive  of  ideas  and  plans  for 
the  amelioration  of  the  condition  of  the  poor  by  associated 

24 


Early  Problems  of  Industrial  Insurance 

effort.  The  country  was  in  a  very  prosperous  condition  after 
the  close  of  the  war,  and  labor  as  a  distinct  element  in  our 
national  economy  assumed  more  and  more  an  independent 
position  through  the  rapid  development  of  trade  unionism. 
The,  for  the  time,  enormous  immigration  had  brought  over 
a  large  number  of  Englishmen,  who  were  in  possession  of 
considerable  knowledge  of  friendly  society  methods  and 
management.  Local  lodges  and  affiliated  societies  were 
formed  by  members  loyal  to  their  parent  institution  and 
with  an  abundant  field  for  their  rapid  development.  All 
over  the  country  so-called  co-operative  societies  for  sick 
relief,  support  in  old  age,  or  a  funeral  benefit  payable 
at  death,  were  formed,  almost  without  exception  by  the 
workingmen  themselves,  without  the  necessary  skill  or 
knowledge  of  the  laws  of  mortality  and  finance.  The 
unhappy  experience  of  so  many  of  the  English  societies 
had  no  influence  on  the  organization  of  corresponding  in- 
stitutions in  this  country.  Of  the  so-called  fraternal  socie- 
ties, workingmen's  insurance  associations,  etc.,  organized 
during  the  later  sixties,  distinctly  for  insurance  purposes, 
practically  none  remains  in  existence  at  the  present  time. 
It  is  true  of  this  class  of  institutions  as  Mr.  John  Fiske, 
the  historian,  says  of  all  the  achievements  of  mankind,  that 
"It  is  only  after  much  weary  exertion  and  many  a  heart- 
sickening  failure  that  success  is  attained,"  and,  in  another 
place,  that  "You  cannot  invent  an  institution  as  you  would 
invent  a  plow."*  Workingmen's  insurance  on  the  basis  of 
voluntary  thrift  was  only  in  embryo  in  the  later  sixties, 
but  it  was  certain  to  develop  within  a  few  years. 

The  efforts  made  during  the  fifties  to  place  the  English 
friendly  societies  on  a  sound  foundation  had  not  met  with 
the  success  anticipated,  and  by  1870  the  problem  became 
once  more  acute  and  pressing,  so  that  a  special  Royal  Com- 
mission was  appointed  to  inquire  into  and  report  upon  the 

*  The  Beginnings  of  New  England,  by  John  Fiske,  Boston,  1898,  p.  16. 

25 


Life  Insurance  and  Other  Subjects 

subject  in  all  its  various  aspects.  The  work  of  the  Com- 
mission, which  in  its  make-up  was  indeed  a  most  able  one, 
extended  over  a  number  of  years;  but  reports  were  made 
during  intervals,  and  of  these  the  second,  published  in  1872, 
contained  a  considerable  amount  of  very  useful  information 
relating  to  Industrial  insurance.  Among  the  witnesses  ex- 
amined by  the  Commission  was  Mr.  (now  Sir)  Henry  Harben, 
the  then  secretary  of  the  Prudential,  who,  in  answer  to  some 
three  hundred  questions,  explained  in  great  detail  every 
important  feature  of  the  management  and  experience  of 
his  company.  Already,  in  1871,  in  a  paper  read  before  the 
Institute  of  Actuaries  and  discussed  by  eminent  members 
of  that  body,  Mr.  Harben  had  given  publicity  to  the  ele- 
mentary principles  and  practices  of  this  new  system  of  life 
insurance  for  the  masses,  so  that,  with  the  additional  evidence 
presented  before  the  Royal  Commission,  it  was  made  possi- 
ble for  others  interested  in  the  subject  to  form  a  working  idea 
of  the  problems  involved  in  establishing  a  similar  company 
in  the  United  States.  That  such  a  purpose  was  being  seri- 
ously considered  is  made  evident  by  a  statement  of  Mr. 
Harben's  before  the  Royal  Commission,  that  "In  America 
they  want  to  adopt  the  Industrial  system  of  assurance,  and 
I,  myself,  have  framed  an  Act  of  Congress,  with  all  the 
necessary  schedules  for  them  for  the  purpose."  *  The  in- 
surance periodicals  of  the  United  States  from  1868  to  1872 
contain  occasional  references  to  various  efforts  to  establish  In- 
dustrial insurance  in  this  country,  but  not  one  of  the  attempts 
was  carried  into  practical  execution.  The  time,  however,  had 
come,  and  the  opportunity  was  ripe  for  an  experiment  in  this 
direction,  but  none  of  the  large  companies  seemed  inclined 
to  take  an  interest  in  the  subject.  They  were  entering  upon 
a  period  of  disastrous  and  far-reaching  financial  disturb- 
ances, which  paralyzed  all  efforts  at  material  improvement 
and,  for  the  time  being  at  least,  discouraged  new  ventures  in 

*  Third  Report  of  the  Royal  Commission  on  Friendly  Societies,  London,  1873,  p.  83  (A.  26,125). 

26 


Early  Problems  of  Industrial  Insurance 

making  life  insurance  more  widely  popular  among  the  in- 
dustrial population. 

For  their  earnest  efforts  to  provide  by  insurance  for  the 
uncertainties  of  the  future,  the  workingmen  of  England  and 
the  United  States  are  deserving  of  unstinted  praise.  While 
many  societies  were  formed  by  persons  seeking  their  own 
interests  and  abusing  the  confidence  of  their  fellow  laborers, 
far  more  numerous  are  the  instances  where  such  organiza- 
tions were  established  with  the  very  best  of  motives,  by  men 
unselfishly  seeking  to  advance  the  interests  of  their  class. 
Nor  must  it  be  overlooked,  as  pointed  out  by  Hardwick  in 
his  "History  of  Friendly  Societies,"*  that  "The  now  insolvent 
societies  had  been  formed  upon  the  models  submitted  to 
them  by  the  very  parties  who  were  supposed  at  the  time  to 
be  the  very  best  to  advise  in  such  matters.  But  these  facts 
are  too  often  ignored  or  forgotten  by  a  certain  class  of  in- 
dividuals, who  idly  denounce  the  efforts  of  the  working  class, 
instead  of  in  a  kindly  spirit  pointing  out  the  most  radical 
method  for  their  eradication."  The  difficulty  in  fraternal 
insurance  is  fundamental.  It  is  impossible  for  a  purely 
social  and  semi-philanthropic  institution  like  a  fraternal 
society  to  enter  into  a  distinct  business  arrangement,  make 
promises  of  a  sum  certain  depending  upon  life  contingen- 
cies, and  retain  at  the  same  time  its  earlier,  perhaps  more 
primitive,  but  certainly  more  useful,  social  character.  The 
peculiar  function  which  it  fills  in  the  social  economy  of  the 
people  cannot  be  replaced  by  any  other  institution  yet  de- 
veloped, but  the  life  insurance  function  is  so  successfully 
carried  into  effect  by  entirely  responsible  companies  that 
even  though  there  be  a  slight  difference  in  the  expense  rate, 
under  the  very  best  conditions  the  possible  gain  is  not  com- 
pensated for  by  the  risk  of  almost  certain  loss. 

During  the  early  seventies,  however,  no  opportunity  ex- 
isted for  workingmen  to  avail  themselves  of  the  advantages 

*  The  History,  Present  Position  and  Social  Importance  of  Friendly  Societies,  by  Charles  Hard- 
wick, London, 1850. 

27 


Life  Insurance  and  Other  Subjects 

of  sound  life  insurance,  except  under  conditions  which  were 
practically  prohibitive.  Not  only  were  no  efforts  made  by 
Ordinary  companies  to  solicit  risks  on  the  lives  of  wage- 
earners,  mechanics,  laborers,  etc.,  but  the  necessary  habit  of 
periodical  saving  had  not  been  formed.  Reliance  was,  there- 
fore, placed  upon  institutions  without  intrinsic  merit  and 
which  were  almost  certain  to  fail  within  less  than  another 
generation.  Their  number  and  rapid  development,  how- 
ever, gave  evidence  of  a  growing  interest  in  life  insurance 
among  the  masses  and  a  gradual  recognition  of  the  superior 
advantages  of  commercial  institutions  conducting  the  business 
in  conformity  to  correct  principles  of  insurance  science. 
The  history  of  this  period  records  numerous  instances  of  ef- 
forts on  the  part  of  trades  unions  to  effect  arrangements  with 
large  companies,  but  the  matter  was  looked  upon  in  too  indif- 
ferent a  light  by  the  managers  to  assume  a  practical  character. 
Of  what,  for  the  time  being,  was  called  the  "Bund"  system, 
mostly  originating  with  German  benefit  societies,  only  traces 
now  are  found  in  a  few  existing  policies,  the  liability  for 
which  was  assumed  by  responsible  companies.  It  was  pointed 
out  by  the  Exchange  and  Review  in  1869,  that  "An  end 
being  honestly  sought,  impracticable  ways  to  it,  adopted  in 
mistake,  will  give  place  to  the  practicable.  With  a  way  open 
these  combinations  will  gravitate  towards  the  proper  life 
companies,  and  unions  for  effecting  life  insurance  with  the 
companies  and  under  special  arrangements  may  be  part 
of  the  problem  of  the  future,  and  which  may  make  individual 
insurance  certain  and  more  available."  This  prediction, 
however,  was  not  verified  by  subsequent  experience. 

Life  insurance  and  savings  banks  in  the  United  States 
were  in  1873  in  a  most  precarious  condition,  complicated 
by  the  panic  and  resulting  business  depression  and  the  enor- 
mous depreciation  in  values.  Every  financial  institution 
was  tested  to  its  foundations,  and  while  a  large  number  of 
the   more   recently  organized   companies   went   under,   the 

28 


Early  Problems  of  Industrial  Insurance 

gigantic  structure  of  sound  life  insurance  remained  unshaken, 
a  monument  to  the  wisdom  and  prudent  forethought  of  the 
founders,  who,  with  prophetic  insight,  had  guarded  against 
the  shock  which  sooner  or  later  was  certain  to  come.  The 
wonderful  prosperity  of  the  country  after  the  close  of  the 
civil  war  had  not  been  without  effect  on  life  insurance  trans- 
actions, and  what  for  the  time  must  have  seemed  remark- 
able results  had  been  attained.  A  large  number  of  new 
companies  had  been  organized,  and  by  January  i,  1871, 
some  seventy-one  companies  reported  to  the  New  York 
Insurance  Department.  Following  the  failure  of  the  Great 
Western  in  1870,  a  comparatively  unimportant  institution, 
one  small  company  after  another  found  itself  in  difficulties, 
terminating  either  in  a  receivership  or  the  reinsurance  of  the 
business  in  some  other,  equally  weak,  institution.  Failures 
in  the  banking  world  added  largely  to  the  increasing  public 
distress,  and  what  had  been  in  a  fair  way  to  become  a  widely 
diffused  thrift  function  was  by  1875  rather  the  exception  than 
the  rule.  Both  savings  and  insurance  by  this  time  had  prac- 
tically come  to  a  standstill,  and  the  companies  or  institutions, 
instead  of  making  progress,  were  in  the  majority  of  instances 
unable  even  to  hold  their  own. 

The  American  student  of  the  workingmen's  insurance 
problems  of  this  period  found  himself  confronted  by  a  truly 
astonishing  mass  of  evidence  and  data  pertaining  to  the  theory 
and  practice  of  friendly  societies  and  related  associations, 
with  a  few  fragmentary  essays  and  reports  on  commercial  in- 
surance undertakings,  such  as  the  Prudential  Assurance  Com- 
pany of  London.  The  published  evidence,  and  in  a  still  larger 
measure  public  opinion,  strongly  favored  the  mutual  assurance 
societies  for  workingmen,  however  inherently  defective;  pri- 
marily, no  doubt,  because  in  their  professed  aims  they  attempt- 
ed to  deal  with  a  large  number  of  wants  and  needs  for  which 
private  and  public  charity  would  otherwise  have  to  provide. 
Insurance   against  sickness   and   against  incapacity  in  old 

29 


Life  Insurance  and  Other  Subjects 

age  had  so  much  of  intrinsic  merit  to  commend  it,  that, 
naturally,  in  any  new  undertaking  these  facts  would  have  to 
be  seriously  considered,  in  that  a  policy  provision  to  this  effect 
would  form  a  very  strong  attraction  and  contribute  to 
gain  popular  support.  Nor  was  the  statistical  evidence 
wanting  to  place  such  an  institution  on  a  reasonably  secure 
basis.  The  earlier  calculations  of  the  amount  of  sickness 
among  wage-earners,  as  reported  by  the  Select  Committee 
of  the  House  of  Commons  in  1825,  had  been  followed  by 
the  investigation  and  reports  of  the  Southwell  Society,  and 
later  by  the  works  of  Mr.  John  Finlaison.  The  Southwell 
Society  tables  were  published  in  detail  by  the  Rev.  John 
Thomas  Becher  in  1829,  and  in  1830  Mr.  Henry  Gregson 
published  his  suggestions  for  establishing  friendly  societies 
and  savings  banks.  The  well-known  treatise  on  friendly 
societies  by  Mr.  Charles  Ansell,  published  under  the  aus- 
pices of  the  Society  for  the  Diffusion  of  Useful  Knowledge, 
appeared  in  1835,  but  already,  in  1833,  Mr.  John  Finlaison 
had  given  publicity  to  a  series  of  tables  of  monthly  contribu- 
tions which  had  the  endorsement  of  Mr.  John  Tidd  Pratt, 
later  the  Chief  Registrar  of  Friendly  Societies.  It  was  not 
until  1845,  however,  that  Mr.  F.  G.  P.  Neison  read  his  cele- 
brated "Contributions  to  Vital  Statistics"  before  the  London 
Statistical  Society,  which  was  subsequently  reprinted,  in  a 
more  elaborate  form  and  in  different  editions,  as  a  standard 
work  of  reference  on  friendly  society  theory  and  practice. 
In  1850,  under  the  direction  of  Mr.  Henry  Ratcliffe,  a  very  im- 
portant report  was  published  on  "Observation  of  the  Rate  of 
Mortality  and  Sickness  Existing  among  Friendly  Societies," 
calculated  from  the  experience  of  the  Manchester  Unity  of  the 
Independent  Order  of  Odd  Fellows.  This  report  was  fol- 
lowed in  1852  by  an  appendix  containing  additional  data 
and  observations.  The  work  of  Mr.  Ratcliffe,  next  to  the 
earlier  work  of  Mr.  Neison,  forms  one  of  the  foundation- 
stones  of  modern  workingmen's  insurance  on  the  basis  of 

30 


Early  Problems  of  Industrial  Insurance 

voluntary  thrift.  In  1851  Mr.  James  Henry  James  published 
a  "Guide  to  the  Formation  and  Management  of  Friendly 
Societies,"  containing  among  other  tables  several  in  which  the 
contributions  from  age  ten  upwards  were  calculated  on  a 
weekly  basis.  In  1852  a  "Return"  was  published  by  Parlia- 
ment, under  the  supervision  of  Mr.  John  Tidd  Pratt,  contain- 
ing a  mass  of  data  regarding  the  sickness  experience  of  the 
registered  friendly  societies  during  the  five  years  ending  with 
1850.  An  elaborate  analysis  of  the  "Return"  was  published 
in  1853,  prepared  by  Mr.  John  Glenn  Finlaison,  the  well- 
known  actuary  of  the  National  Debt  Office.  A  further  report 
was  published  the  year  following  by  the  same  authority,  sup- 
plementary to  the  earlier  observations.  In  1859,  Mr.  Charles 
Hardwick,  the  Past  Grand  Master  of  the  Independent  Order 
of  Odd  Fellows,  published  an  admirable  treatise  on  the  history 
of  friendly  societies,  including  a  very  suggestive  chapter  on 
the  practical  development  of  the  science  of  vital  statistics. 
During  the  same  year  Mr.  Arthur  Scratchley  issued,  as  the 
third  division  of  his  comprehensive  work  on  life  insurance, 
a  treatise  on  friendly  societies,  containing  "An  Exposition 
of  the  True  Law  of  Sickness,"  with  remarks  on  the  exten- 
sion of  Industrial  life  insurance.  Two  years  later  Mr. 
Ratcliffe  issued  a  supplementary  paper  on  the  rate  of  mor- 
tality and  sickness  amongst  friendly  societies,  and  this  was 
followed  in  1867  by  a  history  of  the  Odd  Fellows,  Manchester 
Unity,  by  Mr.  James  Spry,  and  in  1871  by  a  pamphlet  on 
"The  Manchester  Unity,"  by  Mr.  F.  G.  P.  Neison. 

Out  of  this  mass  of  reports,  data  and  observations,  it 
appeared  entirely  feasible  and  practicable  to  reconstruct  on 
a  business  basis  a  plan  of  life  insurance  for  the  masses  com- 
bining the  three  elements  of  friendly  society  theory,  namely, 
the  assurance  of  a  sum  certain  payable  at  death,  the  pay- 
ment of  a  sum  certain  during  sickness,  and  the  payment  of 
a  sum  certain  during  incapacity  or  old  age.  Subsequent  ex- 
perience proved  that  under  present  conditions  the  operations 

31 


Life  Insurance  and  Other  Subjects 

of  an  Industrial  company  must  of  necessity  be  limited  to  the  as- 
surance of  a  sum  certain  payable  at  death,  while  the  assurance 
of  a  stipulated  sum  during  sickness  can  only  with  safety  be 
transacted,  and  then  only  in  a  limited  way,  by  fraternal  organ- 
izations having  a  perfect  knowledge  of  and  complete  super- 
vision over  the  individual  members.  During  the  early  seven- 
ties, however,  this  result  could  not  be  foreseen,  and  in  the 
light  of  the  then  available  information  it  seemed  better  to 
follow  the  general  principles  of  friendly  society  management 
and  practice  than  to  limit  the  operations  of  workingmen's 
insurance  to  the  more  simple,  but  certainly  more  effective, 
provision  of  a  sum  certain  payable  at  death. 

Our  economic  history  for  the  decade  1 870-1 879  is  one 
of  panic,  disaster  and  distress.  From  1862  the  currency  had 
been  on  a  paper  basis,  and,  all  assurances  to  the  contrary  not- 
withstanding, specie  payments  had  not  been  resumed.  The 
value  of  a  dollar  might  have  been  anywhere  from  forty  cents 
to  ninety-nine,  and  it  was  not  until  1875  that  the  resumption 
act  was  passed,  to  take  effect  on  January  1, 1879.  Hardly  had 
the  act  of  1875  become  a  law  when  efforts  were  made  to 
have  the  same  repealed,  and  but  for  the  strenuous  efforts  of 
Senator  Sherman  this  might  readily  have  been  the  case.  In 
his  own  words  in  the  Senate,  on  March  6,  1876,  "It  is  the 
turning  point  in  our  financial  history,  which  will  seriously 
affect  the  life  of  individuals  and  the  fate  of  parties,  but,  more 
than  all,  the  honor  and  good  faith  of  our  country."  *  With 
the  panic  of  1873  the  wheels  of  industry  had  come  to  a  stand- 
still and  unemployment  had  become  general.  The  mass  of 
the  people  were  entirely  unprepared  for  a  long  period  of  en- 
forced idleness,  and  tens  of  thousands  from  comparative 
comfort  drifted  rapidly  into  debt,  and  from  debt  into  poverty 
and  pauperism.  The  relations  of  employer  and  employee 
became  more  and  more  strained,  ending  in  the  great  strikes 
and  labor  disturbances  of  1877.    The  condition  of  the  people 

*  Speeches  and  Reports  on  Finance  and  Taxation,  by  John  Sherman,  New  York,  1879,  p.  493. 

32 


Early  Problems  of  Industrial  Insurance 

was  indeed  "calculated  to  awaken  the  deepest  sympathy  in  the 
minds  of  those  who  had  the  well-being  of  the  state  at  heart." 

With  increasing  poverty,  the  health  of  the  people  had 
seriously  declined  during  the  early  seventies,  and  while  ordi- 
narily a  very  healthful  country,  the  United  States  at  this 
period  suffered  from  widely-extending  epidemics,  first  of 
small-pox,  then  of  cholera,  and  finally  of  yellow  fever.  The 
large  foreign  immigration  had  materially  increased  the  popu- 
lation of  cities  without  providing  the  means  for  the  corre- 
sponding sanitary  requirements,  and  the  average  city  death 
rate  by  1872  had  reached  the  extraordinary  figure  of  29.9 
per  1,000.  The  mortality  of  children  under  fifteen  had  in- 
creased to  43.7  per  1,000  during  1871-1875,  which  contrasts 
with  28.6  as  the  prevailing  rate  during  1896-1900.  In 
Newark,  N.  J.,  according  to  a  special  investigation*  made 
by  Dr.  Holden,  the  general  death  rate  increased  from  20.0  per 
1,000  during  1869  1033.0  during  1872.  In  many  of  the 
large  cities  special  inquiries  were  made  into  the  sanitary 
state  of  the  people,  and  the  medical  investigations  disclosed 
an  immense  amount  of  preventable  sickness  and  resulting 
premature  mortality.  In  Boston  the  demand  on  the  medical 
charities  had  more  than  doubled  during  the  period  1 869-1 874, 
and  a  similar  condition  existed  in  most  of  the  other  large 
centers  of  population. 

In  New  Jersey  an  investigation  was  made  by  the  Labor 
Bureau  in  1879,  when  the  health  conditions  were  somewhat 
improved,  but  even  then  the  average  number  of  days  lost 
by  wage-earners  on  account  of  sickness  was  returned  as  14.5, 
which  is  more  than  twice  the  normal,  as  determined  by  the 
experience  of  the  friendly  societies.  The  natural  and  im- 
mediate result  of  this  unfortunate  condition  affecting  the 
large  majority  of  our  population  was  a  demand  for  organiza- 
tions corresponding  to  the  English  friendly  societies,  cover- 
ing broadly  the  field  of  insurance  protection  against  sickness, 

*  Mortality  and  Sanitary  Record  of  Newark,  N.  J.,  by  Edgar  Holden,  M.  D.,  Ph.  D.,  Newark, 
N.  J.,  1880. 

33 


Life  Insurance  and  Other  Subjects 

incapacity  during  old  age,  and  the  payment  of  a  definite, 
if  small,  amount  at  death. 

Provident  habits  were,  however,  only  imperfectly  de- 
veloped among  the  large  mass  of  our  wage-earners  during 
the  early  seventies.  As  is  usual  during  long-continued  peri- 
ods of  adversity  and  national  distress,  moral  deterioration 
followed,  and  the  evidence  of  this  we  find  in  the  then  pre- 
vailing amount  of  intemperance.  By  the  official  statistics 
of  the  city  of  Newark,  the  ratio  of  arrests  for  drunkenness 
was  one  to  every  forty-five  of  the  population  during  1 873-1 875 
against  one  to  every  one  hundred  and  forty-five  during  1899- 
1901.  In  other  words,  drunkenness  was  more  than  three 
times  as  common  thirty  years  ago  as  it  is  to-day.  Thus 
poverty  and  sickness,  combined  with  intemperance,  increased 
the  prevailing  amount  of  pauperism  and  made  dependence 
upon  public  and  private  charities  in  sickness  and  distress 
rather  the  rule  than  the  exception. 

Pauperism  had,  in  fact,  increased  to  an  alarming  extent. 
Evidence  as  to  the  thrift  habits  of  the  people  was  collected 
by  official  inquiries  in  Massachusetts  and  New  Jersey,  and 
the  conclusions  were  quite  contrary  to  the  current  theories 
as  to  the  saving  habits  of  the  population.  It  was  brought 
out  that  the  vast  sums  on  deposit  with  savings  banks,  in- 
stead of  being  largely  the  accumulations  of  labor,  were, 
quite  to  the  contrary,  in  considerable  proportions  the  invest- 
ments of  the  wealthy.  The  Labor  Commissioner  of  New 
Jersey  in  his  report  for  1878  had  pointed  out  that  "Within 
the  last  five  or  six  years  it  is  observed  that  the  well-to-do 
class  have  been  attracted  to  these  depositories  with  their 
unproductive  possessions,  until  they  have  ceased  to  reflect 
in  the  aggregate  the  savings  of  the  classes  they  were  origi- 
nally intended  to  benefit."*  Provident  habits,  the  reports 
show,  were  the  exception,  and  as  to  life  insurance,  the  col- 
lected workingmen's  budgets,  or  inquiries  into  family  expend- 

*  First  Annual  Report  of  the  Bureau  of  Statistics  of  Labor  and  Industries  of  New  Jersey,  Trenton, 
1878,  p.  196. 

34 


Early  Problems  of  Industrial  Insurance 

itures,  give  no  evidence  that  payments  were  made  to  any 
extent  on  this  account  by  the  wage-earning  portion  of  the 
population. 

The  economic  condition  of  the  masses  was  indeed  de- 
plorable, and,  even  by  rigid  economy,  only  the  fortunate  few 
could  provide  for  more  than  the  necessities  of  life.  The 
average  income  of  a  wage-earner's  family  in  New  Jersey 
was  officially  returned  as  $513,  against  average  annual  ex- 
penditures of  $521.  The  characteristic  abhorrence  of  a 
pauper  burial  gradually  gave  way  to  the  necessities  of  the 
situation.  The  usual  sources  of  relief  in  case  of  misfortune, 
sickness  or  death  were  no  longer  available.  However  in- 
clined and  willing  to  assist  others,  each  family  had  cares  and 
difficulties  enough  of  its  own.  The  anxiety  of  the  poor  in 
this  respect  was  truthfully  reflected  in  a  statement  by  the 
Labor  Commissioner  of  Massachusetts,  in  his  comments  on 
savings  banks  in  1872:  "There  is  a  class  of  deposits  in  our 
large  cities  that  shows  the  poverty  of  working  women  more 
than  argument  could  do.  This  class  consists  of  poor  women 
who  save  and  starve  for  the  sake  of  having  enough  to  bury 
them."  * 

The  abhorrence  of  a  pauper  burial  is  so  universal  that 
it  may  be  said  to  form  the  foundation  of  life  insurance  as 
represented  in  the  more  humble  sphere  of  burial  clubs  and 
friendly  societies.  Yet  so  universal  was  the  distress  of  this 
period,  and  so  entirely  without  means  were  the  poor  to  pro- 
vide against  this  contingency,  that  the  pauper  burial  rate 
of  the  principal  cities  gradually  increased  to  a  maximum 
point  during  the  period  of  depression.  The  unhappy  state 
of  the  people  can  perhaps  be  best  illustrated  by  the  contrast 
of  the  pauper  burial  rate  during  the  seventies  with  the  cor- 
responding rate  prevailing  at  the  present  time.  In  New 
York  the  rate  had  gradually  increased  to  thirty-three  per 
10,000  of  population,  while  during  the  five  years  1898-1902 

*  Third  Annual  Report  of  the  Bureau  of  Statistics  of  Labor,  Boston,  1872.  p.  334. 

35 


Life  Insurance  and  Other  Subjects 

it  has  been  sixteen.  The  Newark  rate  was  sixteen,  against 
ten  during  1898-1902.  There  are  no  earlier  official  figures 
for  Boston  than  for  1 880-1 884,  but  the  rate  even  then  was 
thirteen  per  10,000,  against  less  than  seven  during  1898- 
1905.  The  reduction  during  the  intervening  years  not  only 
reflects  the  decrease  in  pauperism  and  public  dependency, 
but  even  more  so  the  enormous  improvement  in  the  social 
condition  of  labor  and  the  increased  economic  security  against 
the  uncertainties  of  the  future. 

If  life  insurance  was  comparatively  unknown  among  the 
poor,  considerable  progress  had  been  made  among  the  more 
prosperous  element  since  the  close  of  the  war.  The  failure 
of  a  large  number  of  companies  had,  no  doubt,  acted  as  a 
serious  check  upon  the  immediate  progress  and  created 
wide-spread  distrust  and  apprehensions  of  further  difficulties. 
The  mass  of  the  people,  however,  viewed  the  matter  with 
apathy  and  indifference.  The  general  practice  of  the  com- 
panies was  to  solicit  risks  for  amounts  of  $1,000  and  over, 
and  rather  among  men  in  professional  and  mercantile  em- 
ployments than  among  wage-earners.  The  system  thus 
assumed  the  character  of  a  class  institution,  apparently  de- 
signed for  the  sole  benefit  of  the  well-to-do.  The  extension 
of  life  insurance  principles  and  practice  to  the  wage-earning 
millions  was,  however,  gradually  being  recognized  as  a  com- 
ing factor  in  the  social  economy  of  the  nation,  and  already, 
in  1872,  the  Labor  Commissioner  of  Massachusetts,  in  his 
report  for  that  year,  had  deplored  the  want  of  prudent  habits 
and  the  limited  use  made  by  the  poor  of  the  savings  banks, 
concluding  with  the  advice  that  "These  considerations  sug- 
gest the  important  subject  of  life  insurance,  as  a  means  of 
benefiting  the  workman's  family  in  case  of  his  death.  It  is 
not  our  function  to  enter  at  large  upon  such  details;  and  we 
content  ourselves  with  merely  saying  that  small  investments 
in  life  policies  will  result  in  great  and  material  aid  to  a  family 
after  the  death  of  its  natural  protector  and  support.     This 

36 


Early  Problems  of  Industrial  Insurance 

subject    is  too  important   to   be  overlooked  by   persons    of 
small  means  and  of  small  savings."* 

It  has  been  my  purpose  to  show  that  by  1875  the  social 
and  economic  state  of  the  industrial  population  of  the  United 
States  was  such  as  to  imperatively  call  for  a  new  form  of 
thrift,  better  adapted  to  their  special  needs  than  the  existing 
methods  represented  by  savings  banks  and  insecure 
mutual  aid  associations.  With  a  knowledge  of  the  facts 
and  conditions  which  have  been  set  forth  with  the  neces- 
sary brevity,  a  feasible  project  for  a  modified  form  of  In- 
dustrial insurance,  adapted  to  the  needs  of  American  wage- 
earners,  gradually  assumed  definite  proportions.  The  year 
1875  was  not,  perhaps,  the  most  opportune  in  which  to 
start  a  new  insurance  enterprise,  when  half  of  the  existing 
companies  of  a  few  years  before  had  gone  out  of  business 
and  some  of  those  remaining  were  in  anything  but  an  enviable 
position.  An  opportunity,  however,  presented  itself  of  se- 
curing the  charter  of  the  "Widows'  and  Orphans'  Benefit 
Society,"  organized  in  the  city  of  Newark,  N.  J.,  in  1873, 
"to  assist  sick,  needy,  or  disabled  members,  and  to  provide 
for  the  wants  of  the  widows  and  families  after  death."  The 
charter  right  covered  all  the  essentials  of  friendly  society 
practice  under  corporate  management,  and  when  the  re- 
organization of  the  business  was  effected,  in  1875,  the  new 
society  adopted  the  title  "The  Prudential  Friendly  Society," 
which  was  changed  in  1877  to  "The  Prudential  Insurance 
Company  of  America."  The  aims  of  the  Society  as  set  forth 
in  the  first  prospectus  were  to  enable  people  of  small  means 
to  provide: 

1st,  for  relief  in  sickness  or  accidents; 

2d,  for  a  pension  in  old  age; 

3d,  for  an  adult  burial  fund; 

4th,  for  an  infant  burial  fund. 
Subsequent  experience  proved  that  it  would  be  impossible 

*  Third  Annual  Report  of  the  Bureau  of  Statistics  of  Labor,  Boston,  1872,  p.  525. 

37 


Life  Insurance  and  Other  Subjects 

under  existing  conditions  to  provide  in  this  manner  for 
relief  in  sickness  or  old  age,  and,  accordingly,  after  a  few 
years  the  business  was  limited  to  the  insurance  of  a  sum  cer- 
tain payable  at  death. 

The  space  is  not  available  for  an  extended  sketch  of  the 
early  history  of  the  Society  and  its  struggles  against  over- 
whelming odds  making  for  failure  and  the  miscarriage  of 
the  aims  of  the  founders.  The  writer  was  fortunate  in  asso- 
ciating with  himself  men  of  exceptional  ability  and  high  stand- 
ing in  the  community,  and  but  for  their  hearty  co-operation 
and  their  faith  in  and  unswerving  loyalty  to  the  cause  of  In- 
dustrial insurance,  The  Prudential  would  not  have  survived 
the  many  difficulties  experienced  during  the  earlier  years.  To 
Mr.  Noah  F.  Blanchard,  who  in  1879  became  the  president  of 
the  Company,  to  Dr.  Leslie  D.  Ward,  since  1884  the  vice  presi- 
dent, and  to  Mr.  Edgar  B.  Ward,  counsel,  and  since  1893  the 
second  vice  president,  the  writer  owes  it  that  his  aims  and 
ideals  of  the  early  seventies  were  carried  into  successful  ex- 
ecution. Those  who  came  into  the  Company  as  directors  and 
executive  officers  not  only  risked  their  money,  but  what  was 
far  more  to  them,  their  reputation,  in  a  venture  which  seemed 
almost  certain  to  fail  at  a  time  when  the  most  solid  business 
houses  of  the  country  faced  ruin  and  disaster.  The  work  of 
these  men  and  their  aid  to  the  writer  to  carry  into  practical 
effect  his  ideas  and  ideals  of  many  years  deserve  a  more 
extended  explanation  than  is  possible  on  this  occasion.  The 
present  account  is  merely  a  statement  of  the  general  social 
and  economic  principles  and  conditions  which  underlie  the 
business  of  Industrial  insurance.  Its  rigid  conformity  and 
successful  adaptation  to  these  principles  and  conditions  have 
made  possible  the  great  success  to  which  it  has  now  attained. 

In  his  essay  on  Lombard  Street,  Mr.  Walter  Bagehot 
remarks  that  "It  is  often  difficult  to  say  why  particular  trades 
settle  in  particular  places,"*  and  it  need  not  be  explained  now 

*  Bagehot's  Works,  vol.  V,  p.  10. 

38 


Early  Problems  of  Industrial  Insurance 

why  Newark  was  selected  by  the  writer  as  the  birthplace  of 
Industrial  insurance  in  America.  Nor  would  it  serve  our 
present  purpose  to  go  into  the  details  surrounding  the  organi- 
zation of  the  Prudential  Friendly  Society  and  its  first  few 
years  of  effort  to  establish  the  new  system  of  life  insurance 
for  the  masses  in  a  State  where  previously  it  had  been  entirely 
unknown.  It  is  enough  to  point  out  that  the  difficulties  were 
considerable,  andthatbut  forthe  hearty  co-operation  and  abid- 
ing confidence  of  a  small  group  of  men  the  experiment  would 
have  ended  in  failure.  Newark,  in  1875,  had  a  population 
of  about  120,000,  and  was  then,  as  now,  one  of  the  leading 
manufacturing  centers  of  the  country.  In  many  respects 
the  city  was  an  ideal  community  in  which  to  introduce  In- 
dustrial insurance,  in  that  the  large  majority  of  the  popula- 
tion were  wage-earners,  engaged  in  a  multitude  of  trades 
and  industries,  offering  a  sufficiently  broad  basis  for  the  in- 
troduction of  what  was  then  a  novel  form  of  insurance.  Life 
insurance  in  New  Jersey  had  made  but  small  progress  dur- 
ing the  early  seventies,  and  the  failure  of  the  Newark  Savings 
Institution,  and  later  the  disclosure  of  fraud  and  mismanage- 
ment in  connection  with  the  New  Jersey  Mutual  Life  *  had 
almost  put  a  premium  on  improvidence.  Capital  had  been 
withdrawn  from  investment  and  it  was  only  with  great  diffi- 
culty that  something  less  than  six  thousand  dollars  were 
secured  by  the  writer  and  his  associates  as  a  fund  with  which 
to  begin  active  business  operations. 

The  problems  confronting  the  Society  at  the  outset 
were  indeed  formidable  in  the  extreme.  Success  was 
possible,  but  not  at  all  probable,  and  the  ultimate  fail- 
ure of  the  undertaking  seemed  almost  a  certainty.  While 
the  first  application  was  not  received  by  the  Society  until 
the  10th  of  November,  1875,  for  several  years  previous  care- 
ful consideration  had  been  given  to  every  important  detail 
of  office  theory  and  practice.     The  actuarial  work  in  con- 

*  Report  by  the  Secretary  of  State  of  New  Jersey  on  the  New  Jersey  Mutual  Life  Insurance  Com- 
pany of  Newark,  Trenton,  N.  J.,  1877. 

39 


Life  Insurance  and  Other  Subjects 

nection  with  the  construction  of  the  tables  of  premiums  had 
been  entrusted  to  Mr.  J.  E.  Clark,  a  competent  actuary  and 
professor  of  mathematics  at  Yale  College,  who,  with  much 
skill  and  more  than  ordinary  knowledge  of  friendly  societies' 
experience,  prepared  a  set  of  tables  which  remained  in  use 
for  a  number  of  years,  until  the  sickness  branch  was 
discontinued.  There  were  then  no  trustworthy  American 
life  tables  applicable  to  the  transaction  of  an  Industrial  busi- 
ness, and  reliance  had  necessarily  to  be  placed  on  English 
tables  and  data  until  the  Company's  own  experience  made 
a  readjustment  of  rates  and  amounts  possible.  Every  step, 
however,  was  taken  with  extreme  caution,  and,  when  in 
course  of  time  the  subsequently  tabulated  experience  proved 
the  inexpediency  of  a  sickness  insurance  business  the  same 
was  at  once  discontinued. 

Of  the  many  other  problems  confronting  the  Society, 
only  the  most  important  can  be  referred  to.  The  need 
of  a  thorough  system  of  accounts  to  effectively  check  the 
multitude  of  transactions  involved  in  Industrial  insurance  was 
early  recognized  by  the  managers;  but  Mr.  Harben  had  al- 
ready called  attention  to  this  matter  in  his  paper  read  in 
1 87 1  and  in  his  evidence  before  the  Royal  Commission  of 
1872.*  This  was  necessary,  in  his  own  words,  "So  that  the 
absolute  experience  of  the  workings  of  Industrial  business 
might  be  ascertained,  and  if  proved  that  it  would  be  im- 
practicable to  carry  it  out  with  any  degree  of  profit  that  it 
might  be  discontinued  before  any  great  harm  was  done." 
The  audit,  actuarial  and  statistical  departments  of  the  Com- 
pany have  grown  out  of  this  early  recognition  of  the  neces- 
sity for  an  absolute  check  on  every  important  transaction 
and  of  the  idea  that  a  life  insurance  company's  experience 
includes  the  entire  business  operations  and  not  merely 
the  profit  and  loss  account.  It  is  quite  safe  to  say  now 
that   no  other  business   enterprise  is   so  thoroughly  under 

*  Third  Report  of  the  Royal  Commission  on  Friendly  Societies,  London,  1873. 

40 


Early  Problems  of  Industrial  Insurance 

supervision  and  control  as  that  of  a  large  Industrial  in- 
surance company. 

Another  important  problem  confronting  the  Society  was 
the  difficulty  of  organizing  an  effective  and  loyal  agency  force. 
Two  ways  were  open  to  this  end — the  first  and  more  attractive 
of  which  was  to  bring  experienced  men  from  abroad,  trained 
and  developed  in  the  service  of  English  Industrial  companies; 
while  the  other  was  gradually  to  develop  a  staff  from  the  very 
element  of  the  population  which  it  was  proposed  to  reach. 
The  latter  course  was  decided  upon  as  the  better,  although 
the  instruction  and  training  of  entirely  raw  material  required 
much  time  and  brought  about  a  somewhat  slower  develop- 
ment at  the  start.  The  Company  has  had  no  reason  to  re- 
gret this  decision,  for  by  consistently  adhering  to  this  policy 
it  has  secured  as  loyal  a  force  of  men  as  ever  served  a  com- 
mercial institution.  Many  of  these  men  have_  now  been 
with  us  for  more  than  twenty  years  and  are  the  honored 
leaders  of  our  Old  Guard,  who,  during  the  most  critical 
period  of  Prudential  history,  have  stood  loyally  by  their 
officers  and  faithfully  served  the  cause  with  which  they  had 
cast  their  lot. 

While  every  possible  effort  had  been  made  to  place  the 
Society  on  a  solid  foundation,  the  problem  of  attracting  a 
large  membership  was  complicated  by  the  unsatisfactory 
economic  condition  of  the  people.  The  large  amount  of 
prevailing  involuntary  idleness,  the  general  distrust  in  finan- 
cial institutions,  the  novelty  of  the  idea  itself,  and  the  lack 
of  a  trained  agency  force,  combined  to  limit  the  operations 
of  the  Society  during  the  first  few  years  to  a  comparatively 
narrow  field.  Viewed  from  the  standpoint  of  mere  numbers, 
however,  the  results  obtained  were  quite  remarkable.  Dur- 
ing the  first  complete  year  of  business  operations  the  number 
of  new  policies  secured  was  7,904,  against  about  2,000  new 
policies  secured  during  the  year  by  all  of  the  Ordinary 
companies  transacting  business  in  New  Jersey.     The  year 

4-1 


Life  Insurance  and  Other  Subjects 

following,  that  is,  during  1877,  there  was  a  slight  increase, 
and  the  number  of  new  proposals  received  was  10,521.  This 
number  was  doubled  during  1878,  and,  after  another  year, 
when  the  business  had  been  extended  to  New  York  and 
Pennsylvania,  the  success  of  Industrial  insurance  as  a  dis- 
tinct business  enterprise  may  be  considered  as  having  been 
established.  Other  companies  now  entered  the  field,  active 
competition  led  to  more  determined  efforts  to  extend  the 
business  operations  to  a  larger  field,  and  the  history  of  In- 
dustrial insurance  in  America  since  1879  is  no  longer  ex- 
clusively the  history  of  The  Prudential  Insurance  Company 
of  America.* 

During  the  twenty-eight  years  that  have  passed,  Indus- 
trial insurance  in  the  United  States  has  made  continuous  and 
remarkable  progress,  and  the  number  of  policies  in  force  is 
now  almost  fourteen  millions,  with  the  business  extended 
to  nearly  every  State  of  the  Union. f  The  aims  of  the  founders 
have  been  realized,  and  what  in  1875  was  looked  upon  as  a 
novelty  and  with  distrust  is  now  regarded  by  millions  as 
a  fixed  item  of  family  expenditure.  In  conformity  with 
the  axiom  that  "only  certain  steps  in  advance  are  possible 
at  any  given  time,"  the  business  has  been  developed  by  de- 
grees until  the  larger  portion  of  the  wage-earning  population 
of  the  cities  in  the  industrial  States  are  now  insured.  The 
method  of  insurance  education  has  been  successful,  and 
out  of  the  simple  conception  of  the  Industrial  policy  and 
the  implied  guarantee  of  a  burial  fund  has  grown  the  im- 
posing, continent-wide  structure  of  Industrial-Ordinary  life 
insurance.  Every  Industrial  agent  is  to-day  a  solicitor  for 
Ordinary  policies  of  $500  and  upwards,  with  premiums 
payable  quarterly,  semi-annually  or  annually.  A  vast 
amount  of  insurance  protection  for  the  benefit  of  surviving 
members  of  the  family,  for  the  maintenance  of  the  home, 

*  For  a  comprehensive  account  of  the  origin  and  progress  of  the  Company  see  "The  History  of 
The  Prudential  Insurance  Company  of  America,"  by  Frederick  L.  Hoffman,  Newark,  N.  J.,  1900. 

t  On  December  31,  1908,  there  were  19,687,675  Industrial  policies  in  force  in  the  United  States, 
representing  $2,668,919,696  of  Industrial  insurance. 

±2 


Early  Problems  of  Industrial  Insurance 

for  the  education  of  children,  and  for  a  variety  of  other 
purposes,  is  thus  provided,  which  but  for  the  preliminary 
insurance  education  through  the  Industrial  policy  would 
have  been  impossible.  The  future  is  full  of  promise  for 
the  ultimate  development  of  Industrial  insurance  as  a  uni- 
versal thrift  function  in  the  life  of  the  people,  and  the 
record  of  the  American  companies  during  the  past  twenty- 
eight  years  is  evidence  that  needed  improvements  have  been 
introduced  whenever  the  accumulated  experience  warranted 
a  further  step  in  advance.  Just  as  it  is  a  recognized  law  of 
evolution  as  laid  down  by  Mr.  Herbert  Spencer  that  "No 
social  institution  commences  its  existence  in  a  form  like 
that  which  it  eventually  assumes,"  and  that  "In  most  cases 
the  unlikeness  is  so  great  that  kinship  between  the  first  and 
the  last  appears  incredible,"  so  Industrial  insurance  in 
years  to  come  is  certain  to  develop  into  an  agency  of  still 
greater  usefulness  and  assume  more  and  more  the  character 
of  a  vast  social  institution  through  which  most  of  the  eco- 
nomic uncertainties  of  industrial  life  will  be  effectively  pro- 
vided for.  The  broad  foundation  has  been  laid,  millions 
have  been  educated  in  sound  life  insurance  principles  and 
become  habituated  to  systematic  and  periodical  savings. 
The  foundations  of  this  structure  have  been  laid  with  care, 
and  the  business  is  conducted  principally  by  large  and  thor- 
oughly responsible  companies.  The  nature  of  the  business 
demands  constant  vigilance  and  careful  supervision  of  all 
its  details,  and  the  interests  involved  are  so  great  that  a  retro- 
grade step  after  these  twenty-eight  years  seems  to  be  utterly 
inconceivable,  while  a  hopeful  outlook  for  the  future  appears 
to  be  entirely  consistent  with  the  remarkable  history  of  the 
past.* 

*  The  rapid  progress  of  Industrial  insurance  in  the  United  States  is  clearly  indicated  by  the 
table  in  Appendix  E,  which  presents  the  Industrial  insurance  in  force  with  all  Industrial  companies, 
and  the  Industrial  insurance  in  force  with  The  Prudential  Insurance  Company,  which  was  the  pioneer 
company  to  transact  this  form  of  insurance  in  the  United  States. 


43 


Chapter     II 


THE 

FIRST    QUARTER 

CENTURY    OF    INDUSTRIAL 

INSURANCE 

IN    THE 

UNITED    STATES 


PUBLISHED     IN 
THE     INSURANCE     RECORD 

1902 


THE   FIRST   QUARTER 

CENTURY    OF    INDUSTRIAL    INSURANCE 

IN    THE    UNITED    STATES 

|he  first  American  Industrial  policy  was 
issued  by  The  Prudential  in  Newark,  N.  J., 
on  the  tenth  of  November,  1875.  That 
day  may,  therefore,  properly  be  considered 
as  the  date  of  the  commencement  of  actual 
business  operations,  although  for  several 
years  preceding,  careful  consideration  had 
been  given  to  the  perfection  of  the  necessary  details  of 
business  management,  and  the  preparation  of  tables  of 
premium  rates  had  for  months  been  in  the  hands  of  a 
skilled  mathematician.  Careful  attention  was  paid  to  the 
results  of  life  insurance  methods  in  England,  and,  after  ma- 
ture consideration,  the  essential  principles  of  the  Prudential 
Assurance  Company  of  London  were  adopted,  but  modified 
to  suit  American  conditions.  The  London  Prudential  had 
commenced  the  issue  of  Industrial  policies  in  1854,  and  by 
January  1,  1875,  had  almost  2,000,000  policies  in  force — a 
business  success  at  that  time  without  a  parallel  in  the  history 
of  insurance  or  finance. 

The  London  company  had  succeeded  where  the  British 
government  had  signally  failed.  Under  the  personal  direc- 
tion of  Mr.  Gladstone  a  system  of  post-office  insurance  for 
working  people  had  been  inaugurated  during  the  early  part 
of  1865,  with  every  prospect  that  in  a  few  years  the  business 
operations  would  equal,  if  not  exceed,  the  results  attained  by 
post-office  savings  banks.  The  anticipations  were  not  real- 
ized. State  trading  in  this  direction  proved  a  failure.  By 
1875,  when  the  subject  of  Industrial  insurance  was  first  seri- 
ously considered  on  this  side  of  the  Atlantic,  and  after  ten 
years  of  operations,  a  total  of  only  4,478  policies  had  been 


47 


Life  Insurance  and  Other  Subjects 

issued  by  the  Post-office  Department,  while  the  London 
Prudential  during  1874  issued  more  than  16,000  Industrial 
policies  a  week. 

The  progress  and  results  of  Industrial  insurance,  from 
the  commencement  of  business  operations  in  1875  to  the 
close  of  the  last  year  of  the  nineteenth  century,  mark  a  new 
era  in  the  development  of  thrift  agencies  useful  to  millions 
of  our  industrial  population.  Organized  in  1875  by  a  charter 
dated  February  18,  The  Prudential  was  the  first  organiza- 
tion of  its  kind  to  transact  Industrial  insurance  in  the  United 
States.  The  earlier  efforts  to  provide  life  insurance  for  the 
masses  had  been  failures  and  in  many  instances  delusions 
and  snares.  Public  confidence  in  "workingmen's  insur- 
ance" did  not  exist  previous  to  the  organization  of  The  Pru- 
dential. Ordinary  insurance  companies  had  made  con- 
siderable progress,  but  not  in  the  direction  in  which  Indus- 
trial insurance  has  been  so  widely  extended.  The  virtues 
of  prudent  forethought  and  self-denial  were  publicly  decried 
by  those  who,  in  the  name  of  health,  co-operative,  fraternal 
or  workingmen's  insurance,  had  been  defrauded  not  only 
of  the  savings  of  years  but  of  an  opportunity  to  provide  with 
certainty  for  the  immediate  future  of  dependent  members 
of  the  family.  Ordinary  life  insurance  itself  was  under  a 
cloud  and  institutions  for  savings  were  mistrusted,  as  an 
outcome  of  the  results  of  the  financial  panic  of  1873.  Under 
such  circumstances  the  organization  of  a  new  life  insur- 
ance project,  combining  with  established  principles  un- 
tried methods  of  practice,  was  not  a  very  promising  under- 
taking. 

Life  insurance  in  the  United  States  in  1875  was  in  a  de- 
plorable state.  Beginning  with  the  failure  of  the  Farmers 
and  Mechanics,  in  1871,  there  had  been  a  series  of  disastrous 
liquidations,  which  culminated  in  the  failure  of  the  New 
Jersey  Mutual,  in  1877.  The  daily  press  was  filled  with 
charges   of   fraud    and    dishonesty    against    life    insurance 

4* 


First  Quarter  Century  of  Industrial  Insurance 

managers.  The  most  trustworthy  institutions  were  assailed, 
together  with  those  least  worthy  of  public  confidence.  The 
number  of  companies  transacting  business  in  the  State  of 
New  York  decreased  from  seventy-one  in  1870  to  thirty-one 
in  1879.  The  number  of  Ordinary  policies  in  force  decreased 
from  817,000  in  1873,  the  year  of  the  panic,  to  595,000  in 
1879.  _  <         - 

Institutions  for  savings  were  in  a  similar  condition  of 
popular  disfavor  and  distrust.  Failures  had  been  frequent, 
and  with  disastrous  effects  on  the  development  of  habits  of 
frugality  and  self-denial.  In  New  Jersey  one  of  the  most 
respected  institutions,  in  business  since  1847,  became  in- 
volved as  the  result  of  the  panic  of  1873,  and  a  receiver  was 
appointed  in  1878.  This  bank  had  at  one  time  25,000 
depositors  and  carried  deposits  to  the  extent  of  over  eight 
millions,  or  about  one-third  of  all  the  funds  deposited  with 
savings  banks  in  the  State.  The  loss  of  public  confidence  is 
shown  in  the  slow  progress  made  by  savings  banks  during 
the  years  1 878-1 880.  Such  conditions  naturally  affected  ma- 
terially the  growth  of  Industrial  insurance  during  the  early 
years  when  the  operations  of  The  Prudential  were  confined 
to  New  Jersey. 

By  January  1,  1880,  the  Company  had  extended  its 
operations  to  adjoining  States  and  about  44,000  Industrial 
policies  were  in  force.  This  result  appears  small  in  the 
light  of  subsequent  experience,  but  when  we  consider  the 
disturbed  state  of  the  public  mind,  the  general  distrust  of 
life  insurance  and  other  methods  of  thrift,  the  result  is  a 
gratifying  evidence  of  the  early  recognition  of  the  value  of 
Industrial  insurance  as  an  effective  method  of  family  pro- 
tection. Let  us  contrast  the  result  with  the  status  of  Ordi- 
nary insurance  in  New  Jersey  at  the  beginning  of  1880. 
According  to  the  report  of  the  insurance  commissioner  there 
were  twenty-six  companies  transacting  Ordinary  business 
in  the  State.     These  companies  reported  only  17,318  policies 

49 


Life  Insurance  and  Other  Subjects 

in  force,  or  less  than  half  the  number  of  Industrial  policies 
in  force  with  The  Prudential  after  about  four  years  of  active 
corporate  existence.  Yet  some  of  the  Ordinary  companies 
had  transacted  business  for  almost  forty  years,  and  the  largest 
could  show  only  about  3,500  policies  in  force  in  New  Jersey. 
It  is  evident  that  the  progress  of  the  Ordinary  companies 
could  not  be  looked  upon  as  of  much  social  or  economic 
value.  What  was  needed  was  energetic  missionary  work  or 
education  of  the  public  in  the  very  elementary  principles  of 
life  insurance,  not  only  to  make  clear  its  value  as  an  invest- 
ment for  surplus  earnings,  but  also  to  point  out  the  plain  duty 
of  providing  for  the  needs  of  dependent  survivors  according 
to  the  means  of  the  insured. 

There  was  need  of  insurance  protection  in  the  later 
seventies,  if  mortality  data  of  that  period  can  be  relied  upon 
as  evidence  of  the  extent  of  misery  and  want  caused  by  pre- 
vailing epidemics  of  infectious  diseases,  by  a  high  death  rate 
from  consumption  and  an  inordinate  mortality  of  children. 
For  ten  of  the  principal  cities  of  this  country  the  combined 
death  rate  was  26  per  1,000  during  the  period  1870-1874. 
In  Newark  the  rate  was  even  higher,  having  been  29.6  per 
1,000  during  the  same  five  years.  The  deaths  of  children 
under  five  years  of  age  formed  forty-eight  per  cent,  of  the 
total  mortality  in  the  ten  cities  and  fifty  per  cent,  in  Newark. 
There  is  evidence  in  these  statistics  that  what  was  needed  at 
that  time  was  not  so  much  life  insurance  for  the  individual 
as  life  insurance  for  the  family,  including  a  provision  for  a 
sum  certain  payable  in  the  event  of  the  death  of  the  father, 
the  mother,  or  child.  The  unfortunate  economic  conditions 
prevailing  during  the  early  seventies  increased  the  misery  of 
the  poor  by  the  necessity,  in  the  absence  of  other  effective 
agencies,  of  public  aid  or  private  charity  in  the  burial  of  the 
dead.  Pauper  burials,  although  not  an  accurate  measure  of 
the  distress  of  the  period,  reached  an  average  rate  of  20 
per  10,000  of  population.      During  1 881-1885  tne  rate  f°r 

50 


First  Quarter  Century  of  Industrial  Insurance 

eighteen  cities  was  18.5,  against  an  average  of  12.9  during 
the  five  years  1897-1901. 

There  is  now  no  longer  need  on  the  part  of  even  the  very 
poor  to  be  "thrown  in  with  the  city's  dead."  Year  after 
year  the  public  records  show  that  the  taxpayer  is  relieved 
more  and  more  of  the  burden  of  providing  free  burial  and 
medical  attendance,  as  the  number  of  people  who  are  com- 
pelled to  rely  on  these  charities  are  gradually  placing  them- 
selves above  the  need  of  public  or  private  assistance  by  be- 
coming Industrial  policyholders. 

Times  have  changed  for  the  better  during  the  past  quar- 
ter century,  but  in  no  direction  has  there  been  greater  im- 
provement than  in  the  decreasing  rate  of  mortality,  especially 
of  young  children  under  the  age  of  five.  In  Newark,  where 
formerly  one-half  the  mortality  was  of  children  under  five 
years  of  age,  the  proportion  now  is  about  one-third.  The 
general  death  rate  of  Newark  has  declined  from  30  per  1,000 
during  1870-1874  to  19  during  1896-1900.*  Better  housing 
and  better  food,  better  wages  and  shorter  hours  of  labor,  com- 
bined with  an  increasing  intelligence,  are  the  causes  responsi- 
lu  for  the  improvement  which  has  taken  place,  but  when 
we  pause  and  think  how  enormously  the  degree  of  economic 
security  has  been  increased  during  this  period  we  cannot  but 
conclude  that  in  the  social  progress  of  the  nation  Industrial 
insurance  has  played  an  important  though,  in  a  measure, 
an  almost  unrecognized  part. 

In  1879  several  well  established  life  insurance  companies 
which  had  thus  far  transacted  only  Ordinary  insurance  com- 
menced the  issue  of  Industrial  policies  also.  That  competi- 
tion is  the  life  of  trade  was  proved  in  this  instance  with 
exceptional  force,  and  within  another  decade  Industrial  in- 
surance had  assumed  a  position  of  national  importance. 
By  the  first  of  January,  1891,  there  were  3,875,102  Industrial 
policies  in  force    with    nine   companies,  and  the  efforts  of 

*  During  the  period  1901-190S  the  average  annual  death  rate  of  Newark  was  only  18.6  per  1,000  of 
population. 

51 


Life  Insurance  and  Other  Subjects 

another  decade  added  more  millions,  increasing  the  total 
to  11,219,296  in  force  on  the  first  of  January,  1901.*  The 
student  of  social  progress  will  search  in  vain  for  more  con- 
clusive evidence  of  real  social  progress  than  is  found  in  the 
records  of  Industrial  companies.  He  will  not  be  able  to  decry 
the  masses  as  lacking  foresight,  prudence  and  the  spirit  of 
self-denial  in  the  face  of  proof  that,  by  small  weekly  savings, 
$1,466,266,088  of  Industrial  life  insurance  has  been  provided 
for  the  protection  of  dependent  survivors.  The  business  has 
reached  a  position  where  as  a  thrift  agency,  and  from  the 
standpoint  of  the  greatest  good  to  the  greatest  number,  it 
transcends  in  financial  importance  all  other  forms  of  savings 
and  insurance  combined. 

Such  results  would  have  been  impossible  but  for  the 
intrinsic  merits  of  this  form  of  life  insurance.  Industrial  in- 
surance is  a  development  of  earlier  forms  of  insurance  efforts; 
it  is  the  result  of  ages  of  experiment  to  adapt  the  insurance 
idea  to  the  wants  and  needs  of  the  masses.  It  combines 
the  highest  degree  of  absolute  security  with  the  necessary 
degree  of  convenience,  and  is  almost  perfectly  adjusted  to  the 
conditions  of  life,  the  habits  and  the  circumstances  of  the 
general  population.  A  workingman  earning  small  weekly 
wages  has  not,  as  a  rule,  more  than  a  week's  earnings  ahead 
of  him.  Unless  the  insurance  premiums  are  paid  at,  or  very 
near  to,  the  time  the  wages  are  received,  and  paid  without 
any  delay  and  trouble,  to  a  collector  calling  at  the  house  of 
the  insured,  there  may  be  the  same  desire  for  insurance  pro- 
tection, but  the  intention  will  not  as  a  rule  be  carried  out. 
For  this  reason  the  premiums  are  made  payable  weekly 
and  they  are  collected  from  the  houses  of  the  insured. 

For  a  similar  reason  the  system  is  made  applicable  to  every 
member  of  the  family,  although  in  practice  most  companies 
limit  the  ages  of  admission  from  one  to  seventy.  Industrial 
insurance    provides   primarily   for  the   expenses   of  burial; 

*  On  the  first  of  January,  1909,  there  were  19,687,675  Industrial  policies  in  force  in  the  United 
States   representing  $2,668,919,696  of  Industrial  insurance. 

52 


First  Quarter  Century  of  Industrial  Insurance 

therefore,  since  death  is  likely  to  happen  to  any  member  of 
the  family  and  as  the  burden  of  funeral  expenses  would  fall 
with  nearly  equal  weight  upon  all  the  survivors,  a  small  policy 
of  insurance  on  the  life  of  every  member  is  evidently,  for  this 
object,  a  better  provision  than  a  large  sum  placed  upon  a 
single  life.  In  a  condition  of  economic  insecurity  where,  as 
has  been  said,  rarely  more  than  a  week's  wages  is  at  the  dis- 
posal of  a  wage-earner,  such  a  system  of  family  protection  has 
evident  merits  over  any  other  form  which  has  thus  far  been 
devised.  The  view  is  held  by  some,  who  have  not  taken  the 
trouble  to  inquire,  that  Industrial  insurance  is  primarily  for 
the  insurance  of  children.  As  a  matter  of  fact,  the  distri- 
bution of  risks  among  Industrially  insured  persons  by  age 
and  sex  is.  practically  the  same  as  that  of  the  general  popu- 
lation as  determined  by  the  census. 

As  has  been  pointed  out,  the  Industrial  collector  calls 
at  the  houses  of  the  insured  week  after  week  for  the  premiums 
falling  due.  To  any  one  familiar  with  educational  processes 
it  must  be  clear  that  such  a  constant  reminder  of  life  insur- 
ance as  a  duty  and  of  the  necessity  of  foresight  and  self-denial 
must  needs  have  a  considerable  effect  in  other  directions. 
As  it  has  properly  been  said,  one  cannot  develop  thrift  habits 
in  one  important  direction  without  developing  similar  habits 
in  other  directions.  The  premium  receipt  book  is  the  account 
current  between  the  policyholder  and  the  company.  By  the 
most  simple  arithmetical  process  it  is  made  evident  at  any 
time  how  much  has  been  paid  out  and  how  much  will  be  re- 
ceived in  return.  The  publications  issued  by  the  Industrial 
companies  contain  all  the  necessary  information  as  to  Inter- 
mediate and  Ordinary  insurance.  The  agents  of  the  com- 
panies are  not  only  instructed,  but  they  are  required,  to 
canvass  for  Ordinary  insurance  as  well  as  for  Industrial. 
By  degrees  the  general  public  has  been  educated  to  the 
advantages  of  Ordinary  insurance.  From  the  payment  of 
weekly  premiums,  once  the  habit  has  become  a  part  of  the 

53 


Life  Insurance  and  Other  Subjects 

household  economy,  it  is  but  a  step  to  the  payment  of  a 
quarterly  premium  on  an  Ordinary  policy.  The  develop- 
ment of  the  Ordinary  branch  of  Industrial  companies  is  a 
chapter  of  life  insurance  history  of  which  the  companies  have 
particular  reason  to  be  proud. 

As  early  as  1886  it  had  become  evident  to  The  Pruden- 
tial that  the  educational  process  of  Industrial  insurance 
would  impose  upon  the  companies  the  necessity  of  issuing 
Ordinary  policies.  Even  as  far  back  as  1880,  policies  for 
a  round  sum  of  $500  had  been  issued  on  the  weekly  plan, 
but  this  step  proved  inadequate,  and  therefore,  on  January 
19,  1886,  the  first  Ordinary  policy  was  issued  by  The  Pru- 
dential, which  had,  until  that  date,  confined  its  efforts  en- 
tirely to  the  transaction  of  Industrial  business. 

The  field  was  new,  and  once  more  The  Prudential  under- 
took pioneer  work.  A  small  amount  of  Ordinary  business 
had  been  written  by  other  Industrial  companies,  but  not 
among  the  industrial  population.  In  fact,  even  the  large 
Ordinary  companies  not  transacting  Industrial  business  had 
had  no  success  in  reaching  the  large  element  of  the  popula- 
tion engaged  in  manufacturing  industries  or  other  indus- 
trial employments.  The  efforts  of  The  Prudential  proved 
successful.  By  January  1,  1891,  the  principal  Industrial 
companies  had  13,704  Ordinary  policies  in  force,  and  by  Jan- 
uary 1,  1901,  this  number  had  increased  to  340,000,  or  more 
than  the  total  number  of  policies  in  force  in  the  United  States 
in  1866.  Most  of  this  business  has  been  written  among  the 
industrial  population,  although  the  operations  have  of  re- 
cent years  been  extended  by  means  of  special  Ordinary 
agencies  to  a  class  of  people  in  a  position  to  pay  for  larger 
policies.  The  Prudential  issues  at  present  all  forms  of 
Ordinary  contracts,  from  whole  life  policies  to  endowments 
and  annuities.  The  Company  now  issues  policies  from  $15 
to  $100,000.  The  educational  process  has  been  completed, 
the  object  of  Industrial  insurance  has  been  attained ;  life 

54- 


First  Quarter  Century  of  Industrial  Insurance 

insurance  principles  have  in  fact  been  extended  to  the  masses, 
and  the  business  is  now  truly  national  in  its  scope,  extent 
and  importance.  Even  the  most  unfriendly  critic  will  admit 
that  the  results  attained  are  a  credit  to  the  millions  of  men 
and  women  who  by  sacrifice  and  forethought  have  thus 
effectively,  and  to  the  extent  of  their  ability,  made  provision 
for  an  unknown  morrow  and  the  needs  of  others  at  an  hour 
when,  of  all  human  afflictions,  needless,  sordid  poverty  is 
the  greatest. 

The  present  position  of  Industrial  insurance  in  the  United 
States  is  very  clearly  set  forth  in  a  comparison  of  the  num- 
ber of  policyholders  with  the  number  of  savings  banks  de- 
positors, the  policyholders  in  Ordinary  insurance  companies 
and  the  membership  in  fraternal  organizations.  As  has  al- 
ready been  stated,  on  the  first  of  January,  1901,  Industrial 
companies  had  11,219,296  policyholders.  According  to  the 
last  report  of  the  Comptroller  of  the  Currency,  on  June  30, 
1900,  there  were  6,107,083  savings  banks  depositors  in  this 
country,  or  almost  two  Industrial  policyholders  to  every  one 
depositor.  This  comparison  is  not  unfair,  even  though  the 
Industrial  companies  have  a  considerable  number  of  policies 
on  the  lives  of  minors.  A  large  number  of  savings  banks 
deposits,  in  regular  banks  as  well  as  in  school  savings  and 
penny  provident  funds,  are  in  the  names  of  children,  and,  as 
such,  are  properly  included  in  the  total  number  of  savings 
banks  depositors.  Nor  must  the  fact  be  overlooked  that  insti- 
tutions for  savings  have  been  in  active  operation  since  18 16, 
when  the  Boston  Provident  Institution  was  established,  and 
in  1875,  when  The  Prudential  commenced  operations,  there 
were  771  savings  banks,  with  2,359,000  depositors. 

A  comparison  with  the  development  of  Ordinary  insur- 
ance in  the  United  States  presents  a  similar  contrast.  Al- 
though the  Ordinary  companies  have  been  in  active  opera- 
tion for  some  sixty  years,  the  sum  total  of  their  efforts  shows 
only  3,000,000  policyholders  in  1900  against  the  more  than 

55 


Life  Insurance  and  Other  Subjects 

11,000,000  policyholders  of  the  Industrial  companies.  In- 
cluded in  the  number  of  Ordinary  policyholders  are  340,- 
000  insured  on  this  plan  with  the  principal  Industrial  com- 
panies, so  that,  as  the  net  result  of  more  than  half  a  century 
of  Ordinary  insurance  operations  we  have  only  one  Ordinary 
policy  in  force  to  every  four  Industrial.  While  the  average 
amount  of  insurance  is,  of  course,  vastly  greater,  the  social 
and  economic  result  is  almost  the  same,  since,  according  to 
each  one's  need,  $500  is  as  much  to  the  widow  of  a  poor 
man  as  $5,000  to  the  widow  of  the  moderately  well-to-do. 

This  comparison  may  be  further  extended  to  fraternal 
organizations,  the  majority  of  which  have  some  more  or  less 
effective  insurance  provision  as  an  additional  attraction  to 
the  general  social  and  economic  objects  for  which  they  were 
originally  and  primarily  established.  According  to  a  recent 
statement,  there  are  now  about  2,600,000  members  in  these 
organizations,*  which  number  cannot  be  considered  large 
when  we  take  into  account  the  immense  field  and  opportunity 
for  their  development.  The  insecurity  of  this  plan  of  family 
protection  is  in  marked  contrast  to  the  methods  and  results 
of  Industrial  insurance,  and  the  general  development  of  life 
insurance  as  a  provident  institution  cannot  be  said  to  have 
been  advanced  by  organizations  which  by  frequent  failures 
have  done  so  much  to  disturb  public  confidence  in  this  form 
of  family  protection.  The  more  extensive  development  of 
Industrial  insurance  is  largely  the  result  of  the  absolute 
security  of  invested  funds  and  the  certainty  that  "the  promise 
to  pay"  will  be  faithfully  carried  out  at  the  proper  time. 

The  history  of  The  Prudential  Insurance  Company  of 
America  is  in  so  large  a  measure  the  history  of  Industrial 
insurance  in  the  United  States  that  a  recently  published 
volume,  descriptive  of  the  progress  of  the  Company  and  of 

*Mr.  Albert  C.  Stevens  in  Review  of  Reviews,  January,  1900;  figures  for  December  31, 1898.  Prof.  B. 
H.  Meyer  estimated  the  number  in  force  in  1900  at  about  5,000,000  in  his  article  "Fraternal  Insurance  in  the 
United  States,"  Annals  of  the  American  Academy  of  Political  and  Social  Science,  March,  1901,  Philadelphia. 
According  to  The  Insurance  Tear  Book  (Spectator  Co.,  New  York)  there  were  approximately  7,282,000 
fraternal  certificates  in  force  on  December  31,  1907,  representing  about  $8,079,743,000  of  insurance. 

56 


First  Quarter  Century  of  Industrial  Insurance 

this  form  of  insurance  in  general,  may  be  referred  to  as  a 
work  of  interest  and  value  to  those  who  wish  for  more 
knowledge  and  details.*  As  pointed  out  by  Prof.  Roland 
P.  Falkner  in  his  review  of  the  "History  of  The  Prudential," 
"It  is  an  authoritative  work  on  a  widely  diffused  form  of 
thrift  but  little  known  outside  of  the  working  classes,  to  which 
it  specifically  appeals."  The  book  formed  part  of  an  ex- 
hibit of  methods  and  results  made  by  The  Prudential  in  the 
social  economy  section  of  the  Paris  Exposition  of  1900.  In 
the  final  report  of  the  Commissioner-General  to  Congress, 
the  subject  is  referred  to  at  length,  including  the  statement 
that  "Though  the  Company  provides  both  Ordinary  and 
Industrial  insurance,  it  was  with  the  latter  branch  that  the 
section  of  social  economy  was  chiefly  concerned  and  it  was 
for  its  exhibit  in  this  field  that  the  Company  received  a  Gold 
Medal."  f  To  the  general  public  endorsement  of  Industrial 
insurance  as  an  effective  method  of  family  protection  there 
has  thus  been  added  the  unqualified  approval  of  an  inter- 
national jury  of  experts,  not  only  of  life  insurance  as  such, 
but  of  life  insurance  in  its  relation  to  public  welfare  and  social 
betterment.  J 

With  more  than  11,000,000  policyholders,  Industrial  in- 
surance has,  in  1901,  reached  a  position  where  further  prog- 
ress will  not  only  be  in  the  direction  of  increased  numbers, 
but  especially  toward  a  higher  development  of  office  and  field 
organization,  of  the  Industrial  policy  contract,  and  of  the  gen- 
eral relation  of  Industrial  insurance  to  public  welfare.  As  to 
further  numerical  progress,  it  may  be  pointed  out  that  the 
results  obtained  in  New  Jersey  mark  the  possibilities  in 
other  States.     Here  we  have  a  population  of  1,883,669  and 

*  History  of  The  Prudential  Insurance  Company  of  America,  1875-1900,  by  Frederick  L.  Hoffman; 
The  Prudential  Press,  1900. 

t  Report  on  the  International  Universal  Exposition  at  Paris,  1900,  vol.  II,  pp.  440,  441,  Wash- 
ington, 1901. 

X  A  larger  exhibit  of  its  business  methods  and  results  made  by  The  Prudential  at  the  Louisiana 
Purchase  Exposition,  St.  Louis,  1904,  received  the  Grand  Prize;  an  exhibit  by  the  Company  at  the 
Jamestown  Tercentennial  Exposition  received  a  Gold  Medal;  and  an  exhibit  of  charts  showing  the 
mortality  from  consumption  in  dusty  trades  at  the  International  Tuberculosis  Congress  at  Washington, 
1908,  received  a  Gold  Medal,  in  all  cases  the  highest  possible  award.  No  other  life  insurance  company 
in  the  world  has  received  international  honors  corresponding  to  those  received  by  The  Prudential. 

57 


Life  Insurance  and  Other  Subjects 

1,268,360  Industrial  policies,  representing  an  estimated  in- 
sured population  of  975,000.  In  other  words,  fifty-two  per 
cent,  of  the  people  of  New  Jersey  are  to-day  insured  with 
Industrial  companies  on  the  Industrial  plan.  Still  better 
results  have  been  obtained  in  the  city  of  Newark,  where  the 
Prudential  was  organized  in  1875.  Here  we  have  a  popula- 
tion of  246,000  and  about  260,000  policies  in  force,  repre- 
senting an  estimated  insured  population  of  200,000.  In 
other  words,  about  eighty  per  cent,  of  the  population  of 
Newark  are  insured  with  Industrial  companies  on  the  In- 
dustrial plan.  It  is  not  going  too  far  to  anticipate  the  time, 
certainly  within  another  quarter  of  a  century,  when  the  re- 
sults obtained  in  New  Jersey  will  be  general  for  the  country 
at  large  and  when,  of  the  insurable  population  of  the 
cities,  four-fifths  will  be  policyholders  in  Industrial  com- 
panies. Thus  far  the  business  has  been  largely  confined 
to  the  cities,  but  by  degrees  the  operations  of  district  mana- 
gers have  been  extended  to  the  rural  and  agricultural  sections, 
indicating  possibilities  of  development  and  growth  in  a  new 
direction  and  in  a  new  field.  Even  among  the  more  pros- 
perous elements  of  our  population  our  experience  proves 
that  there  are  many  to  whom  an  Industrial  policy  is  a  safe- 
guard against  an  hour  of  need.  The  proceeds  of  an  Indus- 
trial policy  are  often  more  than  sufficient  to  pay  burial  ex- 
penses, leaving  the  proceeds  of  an  Ordinary  life  insurance 
policy  or  of  other  investments  intact  for  the  benefit  of  the 
surviving  members  of  the  family. 

The  evolution  of  the  Industrial  policy  contract  is  in  itself 
a  most  instructive  phase  of  life  insurance  development.  To- 
day the  Industrial  policy  contains  all  the  usual  provisions 
and  privileges  of  a  regular  Ordinary  contract,  and  there  has 
been  added  in  recent  years  a  liberal  clause  regarding  revivals, 
by  which  the  premiums  in  arrears  can  be  charged  against 
the  policy  as  a  lien  without  interest,  making  the  lapse  of  a 
policy   unnecessary   when   the   desire    for    its    continuance 

58 


First  Quarter  Century  of  Industrial  Insurance 

exists.  All  restrictions  as  to  service  in  the  army  and  navy  in 
time  of  war  have  been  removed  and  the  method  of  claim 
payments  has  been  materially  improved. 

The  relation  of  Industrial  insurance  to  public  welfare 
has  already  been  touched  upon  in  the  remarks  as  to  the 
decrease  in  pauper  burials  since  the  introduction  of  the  busi- 
ness in  this  country.  This,  of  course,  is  only  one  phase  of 
a  large  and  complicated  aspect  of  the  general  problem,  but  it 
is  of  interest  to  note  that,  on  the  basis  of  trustworthy  data 
supplied  by  city  officials  in  all  parts  of  the  country,  it  appears 
that  if  the  earlier  pauper  burial  rate  had  prevailed  during 
the  past  five  years  there  would  have  been  approximately 
140,000  more  pauper  burials  in  the  cities  of  the  United  States 
than  was  actually  the  case.  This  represents  an  average 
annual  decrease  in  the  number  of  pauper  burials  of  28,000, 
the  large  majority  of  which  represent  persons  who  under 
the  earlier  conditions  would  have  been  buried  through  the 
assistance  of  the  State.  Since  the  average  cost  of  a  pauper 
burial  is  about  $7,  the  annual  saving  to  the  cities  represents 
not  less  than  $200,000.  This,  however,  is  only  a  fraction 
of  the  actual  saving  to  the  State  resulting  from  this  form 
of  family  protection.  The  companies  now  pay  annually  over 
$20,000,000  *  in  claims  to  the  beneficiaries  of  Industrial 
policyholders,  and  the  value  of  this  method  of  insurance 
must  necessarily  increase  with  the  increasing  age  of  the 
companies. 

In  many  other  directions  Industrial  insurance  is  becoming 
a  valuable  auxiliary  agency  in  the  development  of  measures 
and  means  for  the  health  and  general  welfare  of  the  masses. 
The  companies  are  especially  interested  in  problems  of  pre- 
ventive medicine,  and,  as  an  evidence  of  this  interest,  The 
Prudential  last  year  complied  with  the  request  of  the  execu- 
tive committee  of  the  London  Congress  on  Tuberculosis 
for  data  and   charts  illustrating  its  experience.     The   data 

*  During  the  year  1908  approximately  $36,700,000  was  paid  to  Industrial  policyholders  and  their 
beneficiaries  in  the  United  States. 

59 


Life  Insurance  and  Other  Subjects 

contributed  proved  a  valuable  addition  to  the  accumulated 
experience,  and  the  charts  have  been  permanently  placed  on 
exhibition  with  the  Sanitary  Institute  of  Great  Britain.*  In 
this  and  in  many  other  directions  the  scientific  results  of 
Industrial  insurance  experience  are  being  made  to  contribute 
to  measures  for  the  gradual  improvement  of  the  conditions 
of  life  of  the  working  people  of  this  country. 

Much  more  could  be  said  on  so  vast  and  intricate  a  sub- 
ject as  the  causes  of  the  growth  and  the  reasons  for  the  endur- 
ing stability  of  so  effective  a  form  of  thrift  as  Industrial  insur- 
ance, but  the  limits  of  this  article  forbid  a  more  extended 
consideration.  I  cannot  better  conclude  these  few  obser- 
vations than  by  quoting  a  statement  which,  though  originally 
applied  to  savings  banks,  is  equally  applicable  to  our  busi- 
ness :  "The  institution  that  lives,  succeeds  and  accomplishes 
results;  which  grows,  expands  and  adapts  itself  to  the  vary- 
ing phases  of  the  social  necessity  which  it  was  ordained  to 
minister  unto,  is  an  embodied  law  of  the  social  fabric;  it  is 
an  organic  function  of  society  itself,  and  is  to  be  watched, 
guarded  and  cared  for  with  solicitude. "f 

The  history  of  the  first  quarter-century  of  Industrial  in- 
surance in  the  United  States  is  a  record  worthy  of  the  high- 
est praise,  for  it  represents  the  results  of  a  successful  effort 
on  the  part  of  the  American  people  to  provide  for  their  own 
wants  in  their  own  way.  The  future  of  the  business  is  full 
of  promise,  with  every  evidence  that  its  operations  will  be 
more  widely  extended  and  that  its  utility  will  be  considerably 
improved.  The  progress  which  has  been  made  during  a 
quarter  of  a  century,  wonderful  as  it  is,  will  sink  into  in- 
significance in  comparison  with  the  progress  which  will  be 
made  during  the  next  twenty-five  years,  now  that  the  benefits 
of  Industrial  insurance  are  more  widely  diffused  and  its  value 

*  A  chart  exhibit  of  the  mortality  from  consumption  in  dusty  trades,  contributed  by  The  Prudential 
to  the  exhibit  of  the  International  Tuberculosis  Congress,  Washington,  1908,  has,  in  response  to  numer- 
ous requests,  been  reproduced,  to  be  utilized  by  State  and  local  tuberculosis  associations  throughout  the 
United  States  as  a  most  effective  aid  in  the  campaign  against  tuberculosis. 

t  A  History  of  Savings  Banks,  by  E.  W.  Keyes,  New  York,  1876,  vol.  I,  p.  2. 

60 


First  Quarter  Century  of  Industrial  Insurance 

is  more  generally  appreciated  among  the  millions  of  people 
in  the  United  States.  Whatever  progress  is  made,  while  of 
the  greatest  possible  benefit  to  the  policyholders  interested, 
will,  nevertheless,  prove  also  of  material  value  to  the  public 
and  the  nation. 


6l 


Chapter    III 


THE 

SOCIAL    ECONOMY 

OF    INDUSTRIAL 

INSURANCE 


A    LECTURE 

DELIVERED    BEFORE    THE    SENIOR    CLASS 

OF 

YALE    UNIVERSITY 

1904 


THE    SOCIAL    ECONOMY 

OF 

INDUSTRIAL    INSURANCE 

Industrial  insurance  is  of  comparatively 
modern  origin  in  this  country.  All  forms 
)of  life  insurance  are  the  result  of  slow  de- 
velopment in  theory  and  practice,  but  for 
Industrial  insurance  it  may  be  claimed  that 
it  is  the  outgrowth  of  ages  of  experiments 
to  provide,  by  an  effective  and  absolutely 
certain  method,  for  the  financial  needs  of  the  mass  of  the  popu- 
lation at  the  hour  of  bereavement.  The  mass  of  the  people 
are  confronted  by  the  fact  that  death  means  a  large  ex- 
pense— often  a  burdensome  debt — to  meet  the  cost  of  burial, 
or  a  heavy  draft  on  slender  savings,  the  result  of  years  of  ab- 
stinence and  foresight,  or  the  alternative  of  state  or  private 
charity.  However  remote  the  chance  of  death  may  appear 
at  times,  it  is  an  ever-present  contingency,  for  which  an  ef- 
fective provision  has  become  a  necessity  in  civilized  life. 

Industrial  insurance  is  so  called  because  the  system  is 
primarily  designed  to  meet  the  needs  of  wage-earners  em- 
ployed in  manufacturing  industries,  and  the  weekly  premium 
payments  coincide  with  the  weekly  payment  of  wages  and 
salaries.  The  premiums  are  from  five  cents  to  seventy  cents  a 
week.*  The  system  provides  for  family  insurance  on  a  com- 
prehensive plan,  and  every  member  of  the  family  at  any  age 
from  one  to  seventy,  if  in  good  health,  is  insurable.  The 
weekly  premiums  for  a  family  of  five  average  about  thirty-five 
or  forty  cents,  being  respectively  ten  cents  each  for  the  father 
and  mother  and  five  cents  each  for  the  children.  The 
amounts  of  insurance  vary  with  age,  but  average  about  one 

*  Policies  with  three-cent  premiums  were  issued  by  The  Prudential  during  the  period  1875  to  1892. 
They  were  discontinued  March  21,  1892,  but  beginning  with  January,  1907,  this  form  of  Industrial  policy 
has  again  been  issued  by  The  Prudential. 

65 


Life  Insurance  and  Other  Subjects 

hundred  and  fifteen  dollars.*  For  children  under  age  ten  the 
average  is  thirty  dollars,  and  for  persons  over  age  ten,  one 
hundred  and  fifty  dollars.  The  system  is  sufficiently  elastic 
to  meet  the  needs  of  the  most  humble  laborer,  even  though 
advanced  in  years,  as  well  as  the  requirements  of  the  more 
prosperous  mechanic  or  skilled  workman,  able  to  pay  pre- 
miums for  enough  insurance  to  provide  for  more  than  the 
immediate  needs  of  his  family  after  his  death. 

The  premiums  are  collected  weekly  from  the  houses  of 
the  insured  by  authorized  agents,  who  are  also  required  to 
solicit  for  new  insurance.  While  the  collection  of  weekly 
premiums  necessarily  increases  the  cost  of  insurance,  the 
difference  is  relatively  small  when  the  great  convenience  of 
this  method  is  taken  into  account.  Attempts,  especially  by 
the  British  government,  to  transact  a  weekly-payment  sys- 
tem of  life  insurance  without  collectors  have  failed.  Efforts 
to  transact  a  life  insurance  business  on  the  monthly-pay- 
ment plan  have  not  been  successful  to  any  considerable 
degree.  These  are  the  simple  elements  of  a  business  which 
has  grown  to  immense  proportions  during  the  twenty-eight 
years  since  The  Prudential  Insurance  Company  of  America 
was  organized,  in  1875,  as  the  first  company  to  transact 
this  form  of  life  insurance  in  this  country.  The  total  number 
of  Industrial  policies  in  force  in  the  United  States  on  January 
1,  1904,  was  approximately  1 4,625,000. f 

Industrial  insurance  had  its  origin  in  England,  and  the 
evolution  of  the  business  can  be  traced  backwards  by  an 
unbroken  record  through  friendly  societies  and  burial  clubs 
to  the  trade  and  craft  gilds  of  the  fifteenth  century.  The 
development  was  the  inevitable  result  of  economic  laws 
making  for  a  higher  degree  of  efficiency  and  security  in  social 
institutions.     This  is  not  the  place,  however,  to  go  into  the 

*The  average  amount  of  the  Industrial  policies  in  force  in  the  United  States,  December  31,  1908, 
was  $136. 

f  On  January  1,  1909,  the  number  of  Industrial  policies  in  force  in  the  United  States  was 
19,687,675. 

66 


The  Social  Economy  of  Industrial  Insurance 

history  of  these  interesting  associations  for  social  better- 
ment under  different  conditions  of  life.  They  served  their 
purpose  at  the  time,  but  they  would  ill  meet  the  conditions 
of  the  present.* 

In  1853  a  comprehensive  investigation  was  made  by  a 
Parliamentary  committee  into  the  practice  of  life  insurance 
companies  in  England,  and  among  other  conclusions  the 
committee  advanced  the  view  that  "the  ground  hitherto  occu- 
pied by  these  useful  institutions  (life  assurance  associations) 
has  been  comparatively  limited,  and  that  their  application 
is  capable  of  a  great  extension,  not  only  in  the  higher  and  mid- 
dle classes  of  society,  but  also  among  the  humbler  classes, 
to  whom  it  has  recently  been  very  considerably  applied." 

Acting  on  this  suggestion,  the  Prudential  of  London, 
organized  as  an  Ordinary  life  insurance  company  in  1848, 
made  inquiries  and  ascertained  that,  almost  without  excep- 
tion, the  then  existing  so-called  friendly  societies  and  burial 
clubs  were  in  an  unsound  financial  condition,  while  many 
indeed  had  failed,  with  disastrous  results  to  the  people  they 
were  supposed  to  benefit.  A  modest  attempt  had  been  made 
by  the  Industrial  and  General  and  by  the  British  Industrial, 
among  other  English  companies,  to  transact  the  business  of 
life  insurance  for  wage-earners  on  a  commercial  basis,  but 
the  results  had  not  been  very  encouraging.  The  Prudential, 
however,  realized  the  immense  opportunity  to  extend  the 
principles  of  life  insurance  to  the  broad  field  of  workingmen's 
insurance  in  general.  On  the  recommendation  of  the  best 
available  actuarial  talent,  required  for  the  construction  of 
tables  and  plans,  The  Prudential,  in  1854,  commenced  the 
business  of  Industrial  insurance,  destined  to  make  it  one 
of  the  great  life  insurance  companies  of  the  world. 

During  the  fifty  years  which  have  passed  since  the  in- 
troduction of  Industrial   insurance   the   business   has  been 

*  See  article  on  Gilds,  in  Walford's  Insurance  Cyclopedia,  vol.  V,  p.  341  et  seq.;  also  article  on 
Friendly  Societies,  by  the  same  author,  Insurance  Cyclopedia,  vol.  IV,  p.  379  etseq. 

67 


Life  Insurance  and  Other  Subjects 

extended  to  almost  all  civilized  countries,  with  more  or  less 
success;  but  the  development  has  been  greatest  in  English- 
speaking  countries,  and  there  are  now  (January  I,  1904)  more 
than  forty  millions  of  Industrial  policies  in  force  in  the 
world.  Of  this  number  over  one-half  are  in  force  in  the 
United  Kingdom,  about  four  millions  in  Germany,  and  not 
far  from  half  a  million  in  Australia.* 

There  are  now  (1904)  in  force  in  this  country  almost 
fifteen  million  Industrial  policies;  or,  with  five  policies  to  a 
family,  it  would  appear  that  about  three  million  families  in 
the  United  States  are  insured  with  Industrial  companies  for 
sums  which  range  from  $15  to  $1,000.  When  we  take  into 
consideration  the  fact  that  there,  are  about  fifteen  million 
families,  we  have  it  that  at  present  about  one  family  out  of 
every  five  is  financially  interested  in  the  success  and  future  of 
this  form  of  life  insurance  in  the  United  States.  When  we 
further  consider  the  fact  that  the  total  number  of  savings 
banks  depositors  is  only  about  seven  millions'}" — although  we 
have  had  savings  banks  since  the  beginning  of  the  nineteenth 
century,  and  Industrial  insurance  for  only  a  little  more 
than  one-fourth  of  that  period — it  will  be  conceded  that 
Industrial  insurance  is  a  social  institution  of  great  magnitude. 

The  office  practice  of  Industrial  insurance  is,  in  a  general 
way,  almost  identical  with  the  practice  of  an  Ordinary  com- 
pany, using  that  term  in  a  technical  way;  and  nearly  all  of 
the  Industrial  companies  transact,  in  fact,  an  Ordinary  busi- 
ness as  a  complement  to  their  particular  system  of  family 
insurance  on  the  weekly  -  premium  -  payment  plan.  The 
essential  points  of  difference  arise  out  of  the  vast  number  of 
necessary  office  transactions  resulting  from  the  weekly  col- 
lection of  premiums  from  the  houses  of  the  insured  and  the 
character  of  the  class  of  risks  assumed  under  Industrial  poli- 
cies.   It  would  carry  me  too  far  to  discuss,  even  in  a  general 

*  A  conservative  estimate  of  the  number  of  Industrial  policies  in  the  world  on  January  1,  1909, 
is  58,000,000. 

tOn  January  1,  1909,  there  were  about  9,000,000  depositors  in  savings  banks  in  the  United  States. 

68 


The  Social  Economy  of  Industrial  Insurance 

way,  the  office  and  field  administration  of  an  Industrial 
company,  and  my  remarks  are,  therefore,  limited  to  essential 
points. 

First.  The  calculation  of  premium  charges  for  both  in- 
fantile and  adult  risks  is  upon  a  sound  actuarial  basis  de- 
rived from  trustworthy  mortality  tables.  The  premiums  vary 
with  age,  but  there  are  practically  no  restrictions  as  to  occu- 
pation or  residence.  Careful  inquiry  is  made  as  to  the  moral 
character  of  the  risks  assumed. 

Second.  The  collection  of  premiums  from  the  houses  of 
the  insured  is  made  by  authorized  collectors,  or  agents,  who 
are  under  a  most  effective  system  of  supervision,  supple- 
mented by  an  audit  system  of  weekly  accounts  and  debits 
and  credits,  by  which  defalcation,  fraud,  and  intentional 
errors  are  made  difficult  and,  generally  speaking,  impossible. 
Every  policyholder  has  a  premium  receipt  book  in  which 
the  weekly  payments  must  be  entered  by  the  agent,  while  at 
the  same  time  a  corresponding  entry  is  required  to  be  made 
in  the  agent's  collection  book.  The  system  has  worked  so 
well  that  during  the  half-century  since  Industrial  insurance 
has  been  in  operation  no  important  changes  have  been 
made  in  this  branch  of  office  practice. 

Third.  To  every  person  insured  is  issued  a  policy  which 
in  all  essentials  conforms  to  the  contract  issued  to  Ordinary 
policyholders.  The  language  used  is  so  plain  and  free  from 
confusing  technicalities  that  it  is  seldom  indeed  that  there 
are  controversies  or  misunderstandings  between  the  com- 
pany and  the  insured.  The  contract  provides  for  a  definite 
sum  payable  in  the  event  of  death  in  return  for  a  definite 
weekly  premium;  but,  in  addition,  certain  privileges  and 
options  are  granted  to  the  insured,  which  provide  for  a  paid- 
up  policy  after  three  years,  for  additional  benefits  after  five 
years,  for  cash  dividends  after  fifteen  years,  and  for  a  cash 
surrender  value  after  twenty  years. 

Fourth.     Every    policy    contains    a    provision    that    all 

6g 


Life  Insurance  and  Other  Subjects 

premiums  must  be  paid  in  advance  on  the  Monday  of  the  week 
for  which  they  are  due.  In  the  event  of  a  policy  being  more 
than  four  weeks  in  arrears  for  non-payment  of  premiums, 
the  agent  is  required  to  report  the  policy  for  lapse.  Most 
of  the  lapses  of  Industrial  policies  occur  during  the  early 
weeks  of  policy  duration,  when  only  a  few  premiums  have 
been  paid.  Policies  can  be  revived  without  difficulty  pro- 
vided the  arrears  do  not  exceed  one  year,  but  it  is  required 
that  the  applicant  for  revival  pass  a  medical  examination 
or  furnish  other  evidence  of  being  in  good  health.  There 
are  no  fines,  and  every  facility  is  granted  to  keep  the  policy 
in  force.  If  the  arrears  exceed  thirteen  weeks  the  policy 
may  be  revived  without  the  payment  of  arrears,  but  in  place 
thereof  a  non-interest  bearing  lien  will  be  issued,  the  amount 
of  which  is  deducted  from  the  face  value  of  the  policy 
when  it  becomes  payable  as  a  claim. 

Fifth.  In  the  event  of  death  every  effort  is  made  to  pay 
the  claim  as  soon  as  possible,  to  carry  into  effect  the  general 
intent  of  Industrial  insurance  to  provide  for  the  burial 
expenses  of  the  insured.  The  proof  of  death,  however,  re- 
quires to  be  supplemented  by  documentary  evidence:  a, 
claimant's  certificate;  b,  certificate  of  identity;  c,  certificate 
of  the  superintendent  or  assistant  superintendent;  d,  certifi- 
cate of  the  undertaker;  e,  certificate  of  the  attending  physi- 
cian. 

Sixth.  The  agency  system  of  Industrial  companies  is 
in  a  measure  unique  and  deserving  of  special  mention.  A 
large  number  of  agents  are  necessarily  required  to  conduct 
the  office  and  field  operations  of  a  company  insuring  millions 
of  risks,  for  I  may  point  out  in  passing  that  95  per  cent,  of  the 
entire  Industrial  business  is  carried  on  by  three  companies.* 
The  office  organization  consists  of  a  large  number  of  depart- 
ments, which  cannot  very  well  be  dealt  with  on  this  oc- 
casion.  I  have  elsewhere,  in  my  address  on  "Life  Insurance 

*  On  December  31,  1908,  93.2  per  cent,  of  the  Industrial  policies  in  force  in  the  United  States 
were  with  the  three  largest  companies. 

70 


The  Social  Economy  of  Industrial  Insurance 

as  a  Career,"  elaborated  upon  this  part  of  my  subject.  The 
field  operations  require  a  superintendent  in  charge  of  a  dis- 
trict, who  is  aided  by  a  number  of  assistant  superintend- 
ents, under  whose  direction  is  an  agency  force  that  varies 
in  number  according  to  the  size  of  the  territory.  On 
an  average  an  agent  makes  collections  from  about  five 
hundred  to  six  hundred  policyholders,  but  his  compensation 
is  so  adjusted  that  it  is  necessary  for  him,  in  addition,  to 
solicit  for  new  insurance.  By  this  means  it  is  to  his 
pecuniary  interest  to  prevent  the  lapsing  of  policies  and  to 
increase  as  far  as  possible  the  number  of  policies  in  force. 
The  amount  of  collectible  premiums  is  called  the  "debit," 
and  the  agent  is  held  responsible  for  the  condition  of  his 
accounts.  His  books  and  papers  are  periodically  inspected 
by  assistant  superintendents  who  have  a  thorough  knowledge 
of  the  business  and  are  personally  familiar  with  all  the 
insured,  so  that  in  the  event  of  the  resignation  or  death  of 
the  agent  there  is  no  interruption  or  intermission  in  the 
collection  of  the  weekly  premiums. 

\\  ith  these  facts  clearly  stated  we  may  now  consider 
the  place  of  Industrial  insurance  in  practical  economics. 
President  Hadley  very  properly  draws  a  distinction  between 
public  and  private  wealth,  and  points  out  that  "the  growth 
of  national  wealth  depends  upon  causes  far  deeper  and 
more  profound  than  those  that  the  statesman  or  legislator 
can  control."  *  In  life  insurance  we  have  a  species  of  ma- 
terial wealth  representing  more  than  two  and  a  quarter 
billions  of  accumulated  funds  as  security  for  the  faithful 
discharge  of  promises  made  and  obligations  incurred,  and, 
in  addition,  a  vast  amount  of  economic  security  resulting 
from  the  successful  elimination  of  a  risk  inherent  in  the  un- 
certainty of  human  life.  We  may,  therefore,  it  seems  to  me, 
speak  of  life  insurance,  and  in  particular  of  Industrial  insur- 
ance, as  "public  wealth"  in  the  true  and  complete  sense  of 

*  Economics,  by  Arthur  T.  Hadley,  New  York,  1897,  p.  12. 

71 


Life  Insurance  and  Other  Subjects 

President  Hadley's  definition.  He  insists  upon  the  supreme 
importance  of  security  and  the  institution  of  property,  to  ren- 
der possible  the  progress,  social,  moral,  and  economic,  of  the 
race,  for  it  is  only  by  accumulated  wealth  that  men  are  more 
or  less  removed  from  the  immediate  and  destructive  pres- 
sure of  poverty.  While,  no  doubt,  much  of  human  poverty 
is  unavoidable  and  inherent  in  the  very  constitution  of  society, 
a  vast  amount  of  existing  misery  is  preventable  by  the  devel- 
opment of  right  habits  of  savings  and  insurance — by  frugal- 
ity and  efficient  industry.  Abstinence  from  the  immediate 
use  of  money  as  soon  as  earned  is  of  the  utmost  importance 
in  the  economic  development  of  the  people.  No  other  means 
have  yet  been  discovered  to  insure  the  economic  security  of 
the  masses  as  effectually  as  by  insurance.  President  Hadley 
well  says  that  "great  evils  arise  from  trusting  too  much  to 
Providence  and  not  making  a  distinct  personal  efFort  to  meet 
the  contingencies  of  life,"  and  no  method  has  yet  been  devised 
by  which  the  contingency  of  death,  especially  of  premature 
death,  can  be  better  provided  for  than  by  life  insurance. 
Although  the  sphere  of  Industrial  insurance  is  limited  to  the 
providing  of  relatively  small  sums  as  security  against  death, 
they  are  large  indeed  when  considered  from  the  viewpoint 
of  the  masses  who  consume  their  weekly  wages  almost  as 
soon  as  earned. 

The  place  of  life  insurance  in  social  economics  is,  there- 
fore, most  important.  The  accumulation  of  capital,  the  strug- 
gle of  the  masses  for  property  and  economic  independence, 
the  possibility  of  a  more  equitable  and  general  distribution  of 
wealth,  are  all  problems  which  rest  fundamentally  upon  the 
power  and  habits  of  the  people  to  save.  But  saving  habits 
are  acquired  only  with  great  difficulty,  and  the  ordinary  sav- 
ings bank  is  far  from  being  the  evidence  of  workingmen's 
thrift  which  it  is  often  assumed  to  be.  Hon.  Carroll  D. 
Wright  has  estimated  that  not  more  than  one-half  of  the  sum 
on  deposit  with  savings  institutions  represents  accumulations 

72 


The  Social  Economy  of  Industrial  Insurance 

of  wage-earners,  the  remainder  being  the  investments  of  the 
relatively  well-to-do.  Industrial  insurance  serves  both  an 
economic  and  a  social  purpose.  It  is  the  most  effective,  even 
though  perhaps  the  most  elementary,  education  in  thrift 
which  has  yet  been  developed.  The  weekly  premium  pay- 
ments develop  systematic  habits  of  saving  and  lead  to  the 
accumulation  of  millions  which  but  for  this  method  of  insur- 
ance would  be  expended  largely  for  needless  and  often  vicious 
purposes.  The  usual  method  of  accumulating  savings  banks 
deposits  is  in  marked  contrast  to  Industrial  insurance  premium 
payments,  in  that,  as  a  rule,  deposits  are  made  at  irregular 
intervals  and  not  in  the  small  sums  which  represent  true  fore- 
sight, frugality,  and  abstinence  from  needless  expenditures. 

The  weekly  premium  payments  soon  become  a  habit  of 
life,  even  with  the  young,  who  in  time  learn  to  pay  the  five 
or  ten  cents  a  week  necessary  to  meet  the  expense  of  their 
own  insurance.  The  education  in  thrift,  however,  does  not 
end  here.  Systematic  habits  of  saving  are  developed  which 
have  their  effect  in  other  directions,  and  the  conclusion  is 
quite  in  accordance  with  our  experience  that  general  saving 
habits,  accumulations  in  savings  banks,  or  payments  for 
building  loans,  follow  Industrial  insurance  rather  than  precede 
it,  and  are  most  widely  diffused  among  the  people  where  In- 
dustrial insurance  is  most  general  as  a  mode  or  method  of 
family  protection.  For  illustration:  In  this  country  Philadel- 
phia, Pa.,  and  Dayton,  Ohio,  are  often  referred  to  as  cities 
in  which  building  and  loan  associations  have  made  most 
progress,  but  they  are  also  cities  in  which  Industrial  insurance 
is  most  general  as  a  method  of  family  insurance.  In  England, 
it  is  claimed  on  good  authority  that  school  savings  banks 
and  penny  provident  funds  have  been  most  successful  in 
Manchester,  Liverpool,  and  Birmingham,  but  these  are  also 
the  cities  in  which  Industrial  insurance  is  almost  universal, 
so  much  so  that  at  least  four-fifths  of  the  entire  population 
of  these  cities  hold  Industrial  policies. 

73 


Life  Insurance  and  Other  Subjects 

Industrial  insurance  is  not  only  of  great  value  as  an  aid 
to  the  development  of  general  saving  habits  and  the  accu- 
mulation of  property,  but  it  is  a  contributory  agent  of  great 
importance  in  the  progress  and  public  appreciation  of  other 
forms  of  insurance — Ordinary  life,  fraternal,  accident,  fire 
insurance,  etc.  Industrial  insurance  has  enormously  extended 
the  field  of  other  methods  of  insurance  by  familiarizing  the 
mass  of  the  population  with  the  elementary  principles  and 
beneficial  results  of  a  method  of  life  insurance  particularly 
adapted  to  special  needs.  Industrial  insurance  came  into 
existence  in  the  United  States  at  a  time  when  public  faith  in 
financial  institutions,  savings  banks,  Ordinary  life  insurance 
companies,  and,  especially,  so-called  workingmen's  insurance 
on  the  co-operative  plan  was  profoundly  shaken  by  panics 
and  financial  depressions  and  evidences  of  mismanagement 
and  fraud.  Industrial  insurance  has  kept  faith  with  the 
people,  and  every  promise  made  has  been  fully  carried  out. 
Security,  stability,  permanency,  have  been  the  watchwords, 
and  no  social  institution  of  to-day  is  established  on  a  more 
scientific  and  trustworthy  theory  of  mortality  and  finance  than 
the  vast  structure  of  Industrial  insurance  with  its  more  than 
forty  millions  of  policyholders  in  different  parts  of  the  world. 
It  is  not  going  too  far  to  say  that  this  method  of  life  insur- 
ance protection  forms  to-day  one  of  the  most  effective 
measures  making  directly  or  indirectly  for  accumulation  of 
property.  However  small  the  premium  payments  and  how- 
ever small  in  many  cases  the  individual  returns,  the  fact 
remains  that  fifty-two  times  a  year  payments  are  made,  and 
these  lessons  in  thrift  and  accumulation  are  taught  and 
brought  home  to  an  element  of  the  population  which  is 
most  in  need  thereof. 

We  often  hear  the  old  complaint  that  there  is  no  real  prog- 
ress, but  only  a  shifting  of  wealth,  by  which  the  poor  are  made 
poorer  and  the  rich  grow  richer.  Relatively  this  is  true, 
for,  by  contrast,  in  a  more  advanced  society  the  condition 

74 


The  Social  Economy  of  Industrial  Insurance 

of  the  very  poor  becomes  more  striking  and  apparently 
less  necessary.  Actually,  however,  our  progress  during  the 
past  half-century  has  been  real  and  of  vast  benefit  to  the  mass 
of  our  population,  who  in  an  ever-increasing  proportion  are 
attaining  a  relatively  high  degree  of  economic  security  and 
social  well-being.  The  object  of  all  thrift  agencies  is  not  only 
to  aid  persons  to  become  savers  in  the  first  instance  and  to 
accumulate  a  fund  for  future  contingencies,  but  also  "that 
they  may  have  the  consciousness  of  being  removed  (by  their 
own  efforts)  from  the  burden  of  relief- receiving." 

Industrial  insurance  provides  a  sum  certain,  from  $15 
to  $1,000,  at  a  time  when  in  many  households  no  ready 
money  is  otherwise  available  for  the  expenses  incident  to 
death  and  the  last  illness.  The  problem  reduces  itself  to 
the  necessity:  that  the  burial  of  the  father  or  the  child  must 
be  paid  for,  that  it  will  cost  at  least  from  $15  to  $100,  and 
that  this  sum  must  be  provided  for  either  by  the  convenient 
method  of  Industrial  insurance  or  by  a  draft  upon  a  sum 
possibly  accumulated  during  years  of  careful  husbandry  of 
slender  resources  or  by  the  incurrence  of  a  debt  with  the 
undertaker  and  the  doctor.  With  the  last  as  the  alterna- 
tive, it  is  an  open  question  whether  an  undertaker  can  be 
found  who  will  take  the  risk,  and  there  will  often  be  no 
escape  from  the  necessity  of  an  appeal  to  the  public  poor 
fund  or  for  private  charitable  relief.  The  poor  have  their 
standard  of  life  and  customs  as  thoroughly  established  as  the 
well-to-do  or  the  rich,  and,  however  humble  their  station, 
they  prefer  the  burial  of  their  dead  at  their  own  expense  in  a 
manner  which  to  them  represents  the  common  decencies 
of  life. 

Deep  at  the  root  of  the  problem  of  life  insurance  for  the 
the  poor  lies  their  abhorrence  of  a  pauper  burial  and  their 
willingness  to  provide  out  of  present  savings  for  a  future 
contingency  and  the  ever-present  possibility  of  premature 
or  unexpected  death.     As  the  result  of  the  introduction  of 

75 


Life  Insurance  and  Other  Subjects 

Industrial  insurance  into  the  United  States  there  is  now  re- 
turned to  policyholders  about  $25,000,000  per  annum  in  the 
payment  of  claims  alone,  and  the  relative  number  of  pauper 
burials  has  been  materially  reduced  during  the  past  twenty 
years.  On  the  basis  of  a  conservative  estimate  there  would 
be  25,000  more  pauper  burials  per  annum  in  American  cities 
if  this  system  were  not  in  almost  universal  operation.  From 
a  moral  and  sentimental  point  of  view,  therefore,  the  value 
of  Industrial  insurance  as  making  for  a  higher  standard  of 
family  life  cannot  be  overestimated.  It  certainly  is  a  matter 
of  considerable  importance  in  the  life  and  struggle  of  many 
who  are  on  the  very  verge  of  pauperism  and  dependency  to 
know  that  at  the  end  of  their  earthly  difficulties  they  will 
not  be  cast  away  in  a  potter's  field. 

But  the  good  effect  of  Industrial  insurance  as  a  direct 
means  of  reducing  pauperism  does  not  end  here.  In  many 
instances  a  sufficient  sum  remains,  after  the  payment  of 
funeral  and  doctors'  bills,  to  establish  the  widow  in  some  kind 
of  business,  on  a  small  scale  perhaps,  but  sufficient  to  provide 
the  necessary  means  of  support  for  herself  and  children.  As 
a  rule  there  will  be  other  savings  available,  for  Industrial  in- 
surance suggests  the  advantage  and  importance  of  other 
forms  of  investment  and  encourages  economy  in  family  ex- 
penditures. How  far  the  burden  of  poor-relief,  indoor  and 
out,  has  been  actually  diminished  cannot  be  stated  with  even 
approximate  accuracy,  but  there  are  some  very  significant 
data  for  certain  States  and  cities  which  indicate  that,  re- 
gardless of  a  large  immigration,  there  has  been,  during 
recent  years,  a  relative  and  substantial  decrease  in  the  num- 
ber of  paupers  and  in  the  amount  paid  out  for  poor-relief. 

The  indirect  results  of  Industrial  insurance  are,  there- 
fore, of  very  considerable  importance.  Just  as  the  vast  ac- 
cumulations in  savings  banks  are  to  a  considerable  extent 
the  aggregate  of  a  large  number  of  small  deposits,  so  in  In- 
dustrial insurance  the  assets  of  about  $150,000,000,  held  as 

76 


The  Social  Economy  of  Industrial  Insurance 

reserve  and  surplus,  represent  a  vast  amount  of  capital  as 
the  result  of  small  weekly  payments  which  average  about 
ten  cents.*  These  accumulations  do  not  stand  for  idle  capital, 
but  for  public  wealth  in  the  complete  sense  of  the  term.  It 
is  wealth  made  available  for  the  conduct  of  general  busi- 
ness, of  active  enterprise,  and  other  social  and  economic 
ends.  Of  the  two  billions  of  assets  held  by  American  legal 
reserve  life  insurance  companies  75  per  cent,  is  invested  in 
stocks,  bonds,  and  mortgages,  8  per  cent,  in  real  estate,  6  per 
cent,  in  loans  on  policies,  and  the  remainder  in  other  forms  of 
investment  and  as  cash  in  bank.  The  absolute  necessity  for 
life  insurance  companies  to  earn  a  certain  rate  of  interest 
on  their  investments  makes  it  of  the  highest  importance  that 
the  assets  should  be  constantly  employed  in  profitable  en- 
terprises, thus  increasing  materially  the  national  prosperity 
and  social  security  of  the  people. 

I,  therefore,  do  not  go  too  far  in  holding  that  the  indirect 
results  of  this  form  of  insurance,  with  its  encouragement  of 
systematic  saving,  are  at  least  equally  important  with  the  di- 
rect results  represented  by  the  annual  payment  of  over  $25,- 
000,000  in  claims,  etc.,  to  Industrial  beneficiaries.  The  cre- 
ation of  capital  by  this  method  of  insurance  is  indeed  of  far- 
reaching  importance,even  to  the  laborer  or  wage-earner, whose 
economic  security  and  opportunity  for  employment  are  en- 
hanced by  the  real  amount  of  capital  made  thus  available  for 
increased  production.  There  is  no  more  generally  accepted 
postulate  in  economics  than  that  "in  proportion  to  the  in- 
crease in  capital  the  share  of  the  annual  product  falling  to 
capital  is  augmented  absolutely  but  diminished  relatively, 
while  the  share  falling  to  labor  is  increased  both  absolutely 
and  relatively."  Considered  from  this  point  of  view  alone 
Industrial  insurance  makes  for  a  more  general  and  equitable 
distribution  of  wealth. 

The  success  of  Industrial  insurance  may  be  summed  up 

*  On  December  31,  1908,  the  aggregate  reserve  held  by  the  Industrial  companies  for  the  protection 
and  benefit  of  the  Industrial  policyholders  and  their  beneficiaries  was  approximately  $220,000,000. 

77 


Life  Insurance  and  Other  Subjects 

in  a  remark  made  by  Abraham  Lincoln,  that  "with  public 
sentiment  on  its  side  everything  succeeds — with  public 
sentiment  against  it  nothing  succeeds."  The  system  of 
family  insurance  forms  an  integral  part  of  the  domestic  econ- 
omy of  the  American  people.  Organized  in  the  State  of 
New  Jersey,  the  progress  in  local  development  has  been 
most  complete  in  that  State  and  in  the  adjoining  States  of 
New  York  and  Pennsylvania.  In  New  Jersey  there  are 
now  about  1,500,000  Industrial  policies  in  force,  indicating 
that  about  65  per  cent,  of  the  aggregate  population  is  in- 
sured. In  certain  sections  of  Newark,  of  New  York  City, 
of  Philadelphia,  and  of  other  large  cities,  the  system  is  so 
general  that  from  75  to  95  per  cent,  of  all  insurable  persons 
hold  Industrial  policies. 

We  have  made  a  number  of  investigations  to  ascertain 
the  actual  extent  of  Industrial  insurance  in  various  cities,  and 
there  is  one  significant  fact  which  we  have  learned,  especially 
in  and  around  Newark — that  the  proportion  of  population 
insured  on  the  Industrial  plan  is  somewhat  higher  among 
those  who  own  their  own  homes  than  among  those  who  do 
not.  Whether  as  cause  or  effect,  the  fact  remains  that  the 
progress  and  development  of  the  business  have  been  most 
satisfactory  among  the  thrifty  and  stable  element  of  our  in- 
dustrial population.  We  can  go  further  and  say  that  policy- 
holders are  in  other  respects  a  superior  class.  For  illustra- 
tion: We  find  by  our  mortality  statistics  that  the  death  rate 
of  insured  children  is  less  than  the  mortality  of  children 
in  the  general  population  as  determined  by  the  census.  Our 
percentage  of  deaths  from  intemperance  and  alcoholism  is 
less  than  that  expected  by  the  general  standard  of  mor- 
tality, and,  finally,  we  find  that  our  ratio  of  deaths  from 
homicide  and  suicide  is  below  the  average  for  the  country 
at  large.  I  mention  these  facts,  which  are  supported  by  ir- 
refutable evidence,  to  show  that  there  is  a  close  relation  be- 
tween Industrial  insurance  and  the  progress  and  well-being 

78 


The  Social  Economy  of  Industrial  Insurance 

of  the  industrial  population,  and  that  the  Industrial  policy- 
holders represent  a  more  thrifty,  more  temperate,  and  more 
law-abiding  element  than  the  uninsured. 

It  remains  for  me  to  speak  of  the  evolution  of  Industrial 
insurance  and  the  adaptation  of  the  business  to  new  condi- 
tions. When  established,  in  1875,  the  financial  and  indus- 
trial conditions  were  such  as  to  call  for  an  elementary  form 
of  life  insurance,  with  absolute  security  as  the  first  considera- 
tion. By  slow  degrees  public  confidence  in  insurance  and 
financial  institutions  was  restored,  and  as  early  as  1881  it 
became  necessary  to  issue  a  special  policy  for  the  round  sum 
of  £500,  to  meet  a  distinct  and  increasing  demand  from  the 
superior  element  of  our  industrial  population.  By  1886  the 
insurance  education  of  the  masses  had  gone  far  enough  to 
make  it  seem  advisable,  and,  in  fact,  necessary,  to  establish 
an  Ordinary  department.  That  was  less  than  twenty  years 
ago;  but  during  the  intervening  period  the  three  Industrial 
companies  which  transact  95  per  cent,  of  the  business  in  this 
country  have  built  up  a  vast  Ordinary  business  with  about 
720,000  policies  and  £800,000,000  of  insurance  in  force.* 
At  least  one-half  of  this  sum — and  perhaps  three-fifths — rep- 
resents Ordinary  insurance  on  the  lives  of  wage-earners,  or 
persons  in  positions  or  situations  practically  outside  of  the 
field  of  the  solicitor  for  exclusively  Ordinary  companies. 
The  number  of  persons  insured  with  Industrial  companies 
for  both  Industrial  and  Ordinary  is  indeed  quite  large  and 
constantly  increasing.  The  Industrial  policies  are  held  pri- 
marily for  the  payment  of  expenses  incident  to  death;  the  Or- 
dinary for  family  protection,  education  of  children,  and  other 
purposes  of  social  and  economic  importance.  Coincident  with 
the  progress  and  evolution  of  Industrial  insurance  there  has 
been  a  material  improvement  in  the  Industrial  policy  con- 
tract, which  to-day  contains  all  the  essential  and  important 
provisions  and  privileges  of  the  regular  Ordinary  policy.    So 

*  On  December  31,  1908,  the  Industrial  companies  had  1,295,942  Ordinary  policies  in  force,  repre- 
senting $1,317,887,524  of  insurance. 

79 


Life  Insurance  and  Other  Subjects 

we  see  how  close  is  the  relation  between  the  two  forms  of  in- 
surance and  how  important  is  Industrial  insurance  as  an 
education  in  general  insurance  theory  and  practice,  making 
gradually,  but  with  certainty,  for  the  social  and  economic 
security  of  the  people. 

If  there  is  any  one  thing  that  "social  classes  owe  to  each 
other"  it  is  that  all  shall  aim  and  work  to  diminish  the  need- 
less suffering  and  unnecessary  burdens  of  those  for  whose 
well-being  and  future  protection  we  are  individually  or  so- 
cially responsible.  The  evidence  is  conclusive  that  the  mass 
of  our  population  is  engaged  in  a  heroic  struggle  to  escape 
from  dependent  poverty  to  relative  economic  and  social  free- 
dom, and  whatever  contributes  toward  this  much-to-be-de- 
sired end  is  certainly  deserving  of  sympathetic  consideration. 
I  believe  that  in  Industrial  insurance  we  have  a  most  valu- 
able aid  in  this  effort  for  social  betterment  on  a  large 
scale,  and  the  evidence  is  conclusive  that  a  vast  amount  of 
direct  and  indirect  good  is  accomplished  by  this  elementary, 
but  effective,  form  of  thrift.  During  the  almost  thirty  years 
since  Industrial  insurance  has  been  in  active  operation  in 
this  country,  gradual  but  constant  progress  has  been  made 
toward  a  higher  degree  of  social  efficiency,  so  that  we  may 
hopefully  look  forward  and  anticipate  a  time  when  this  form 
of  insurance  will  be  indeed  a  social  institution  of  universal 
utility,  in  every  respect  a  far-reaching  power  for  good,  di- 
rectly to  the  people  and  indirectly  to  the  nation.  I  believe 
that  the  evidence  warrants  the  conclusion  that  Industrial 
insurance  makes  first  for  private  wealth  and  second  for 
public  wealth,  as  well  as  directly  and  indirectly  for  the  all- 
important  end  of  a  higher  degree  of  security  for  the  indus- 
trial population  of  this  land. 


80 


Chapter    IV 

THE    PRACTICE  OF   INDUSTRIAL 
INSURANCE 


STATEMENT   MADE 

TO   A    SELECT   COMMITTEE   OF   THE 

NEW   JERSEY    SENATE 

APPOINTED   TO   INVESTIGATE 

LIFE    INSURANCE 

1906 


THE    PRACTICE    OF    INDUSTRIAL 
INSURANCE 

'ndustrial  insurance  is  life  insurance  for 
small  amounts,  chiefly  on  the  lives  of  wage- 
earners  and  members  of  their  immediate 
families,  with  premiums  payable  weekly 
and  collected  from  the  houses  of  the  in- 
sured. Industrial  insurance  had  its  origin 
in  England,  where,  after  the  dissolution 
of  the  gilds  under  Henry  VIII,  friendly  societies  assumed 
the  task  of  providing  for  the  needs  of  members  in  sick- 
ness or  at  death,  in  return  for  fixed  contributions.*  In 
course  of  time  the  insurance  element  of  this  primitive 
method  of  social  science  attracted  the  attention  of  scientific 
men,  and  by  slow  degrees  the  system  was  perfected  until  the 
rates,  or  premium  charges,  were  adjusted  to  the  ages  of  the 
insured.  In  many,  in  fact  in  very  many,  of  these  societies 
the  assumption  of  an  enormous  rate  of  mortality  did  not 
receive  proper  consideration  until  the  societies  had  fallen 
into  a  hopeless  state  of  insolvency,  and  a  large  number  of 
disastrous  failures  of  friendly  societies  and  burial  clubs  is  a 
matter  of  historical  record.  From  time  to  time  Parliament 
made  inquiry  into  the  subject,  and  in  1853  a  committee  of 
the  House  of  Commons  recommended  the  extension  of  life 
insurance  to  the  masses  upon  the  same  sound  principles  of 
mortality  and  finance  which  underlie  level-premium  insur- 
ance on  the  so-called  Ordinary  plan.  Acting  upon  this 
suggestion,  the  Prudential  Assurance  Company  of  London, 
in  1854,  began  the  transaction  of  a  new  form  of  insurance, 
which  was  thenceforth  called  Industrial,"!"  to  distinguish  it 
from  other  plans,  but  chiefly  because  it  was  intended  to 
meet  the  needs  and  conditions  of  the  industrial,  or  wage- 

*  Annals  of  the  British  Peasantry,  London,  1895,  pp.  82-96. 
t  History  of  the  Prudential  Assurance  Company,  London,  p.  3. 

85 


Life  Insurance  and  Other  Subjects 

earning,  element  of  the  population — in  other  words,  the  pre- 
ponderating majority  of  the  people  of  England. 

At  first  the  progress  was  slow.  Caution  was  necessary 
lest  a  serious  error  of  judgment  in  matters  of  office  and 
agency  administration  should  expose  the  new  experiment 
in  insurance  to  the  risk  of  possible  failure.  From  the  outset 
the  chief  consideration  was  security,  the  absolute  certainty 
that  the  contract  agreement  made  with  the  people,  in  the  form 
of  insurance,  would  be  kept.  The  public  had  been  robbed 
by  bubble  companies  and  swindled  by  societies  often  parad- 
ing under  high-sounding  names,  which,  upon  the  plea  of 
fraternal  interest,  mercilessly  fleeced  the  very  poor  of  their 
last  shilling.  The  question  of  the  cost  of  the  new  form  of  in- 
surance protection  was,  for  the  time,  subordinate  to  the  vastly 
more  important  consideration  of  absolute  security.  The 
essential  point  was  then,  as  it  is  to-day,  that  the  contract 
agreement,  as  embodied  in  the  policy,  for  the  ultimate  pay- 
ment of  a  definite  sum  in  return  for  a  specific  weekly 
premium,  should  be  faithfully  kept.  That  promise  of  good 
faith  is  the  rock  upon  which  Industrial  insurance  has  been 
built,  and  it  is  upon  that  rock  that  the  immense  popularity 
of  this  plan  rests  and  challenges  the  admiration  of  the 
world. 

After  the  first  decade,  or  by  about  1864,  the  business  had 
reached  proportions  which  left  no  question  of  doubt  that 
within  a  comparatively  few  years  the  system  of  Industrial 
insurance  would  become  a  universal  provident  institution  in 
the  United  Kingdom.  The  government  of  the  day  was  made 
aware  of  the  truly  wonderful  success  of  the  Prudential,  and 
upon  the  suggestion  and  urgent  request  of  Mr.  Gladstone, 
a  system  of  post-office  life  insurance  was  established,  which, 
it  was  supposed,  in  conjunction  with  the  post-office  savings 
bank,  would  attract  the  people  in  large  numbers  in  active 
competition  with  private  companies.* 

*  A  History  of  Banks  for  Savings,  by  Wm.  Lewins,  London,  1866,  pp.  345  et  seq. 

86 


The  Practice  of  Industrial  Insurance 

Mr.  Gladstone's  plan  was  worked  out  with  considerable 
skill  upon  the  theory  that  the  comparatively  high  initial  ex- 
pense of  obtaining  new  insurance  could  be  eliminated  by 
making  every  post-office  an  insurance  agency,  where  applica- 
tions could  be  filled  out,  where  policies  could  be  secured,  and 
where  premiums  could  be  paid.  In  time  every  postmaster 
became  more  or  less  an  insurance  agent  for  the  government. 
Extensive  publicity  was  given  to  the  matter  in  various  ways, 
but  the  attempt  was  a  complete  failure.  Experience  proved 
that  the  collector  was  indispensable,  that  the  business  would 
not  come  voluntarily,  that  the  insured  would  not  take  the 
trouble  to  call  at  the  post-office  even  once  a  fortnight,  or 
once  a  month,  to  make  the  necessary  periodical  premium 
payments.  All  the  appeals,  by  placards,  leaflets,  or  otherwise, 
to  the  people  to  insure  upon  their  own  account  through  the 
post-office  proved  a  waste  of  effort;  the  public  simply  paid 
no  attention  to  the  plan  and  continued  to  affiliate  in  ever- 
increasing  numbers  with  the  Prudential  and  with  other  In- 
dustrial companies  which  had  been  organized  in  the  meantime. 

The  public  did  not  want  the  kind  of  insurance  offered 
by  the  government.  The  mass  of  the  people  were  in  need 
of  insurance  protection  adjusted  to  their  conditions  and  habits 
of  life.  They  required  a  system  of  family  protection,  under 
which  a  small,  but  certain,  sum  would  become  payable  in  the 
event  of  the  death  of  any  member  of  the  family.  The  gov- 
ernment ignored  this  point.  The  Industrial  companies  met 
an  existing  need  by  methods  derived  from  long  experience. 
When  it  had  been  found,  by  observation,  inquiry  and  ex- 
perience, that  the  real  problem  to  be  met  was  one  of  family 
insurance,  including  the  children,  the  companies  adjusted 
their  practice  to  this  need,  and  upon  the  basis  of  reliable 
mortality  data  developed  the  essentials  of  the  system  of 
Industrial  insurance  practically  as  it  is  carried  on  to-day 
throughout  the  civilized  world.* 

*  History  of  the  Prudential  Assurance  Company,  London,  p.  12. 

S7 


Life  Insurance  and  Other  Subjects 

The  government  system  of  post-office  life  insurance  is 
still  in  operation.  In  the  forty  years  that  have  passed,  the 
post-office  has  issued  23,641  policies,  and  13,080  policies  are 
in  existence  to-day.  The  large  majority  of  these  are  on  the 
lives  of  post-office  employees.  The  premium  charges  are 
about  the  same  as — at  some  ages  even  higher  than — the 
corresponding  premium  charges  of  private  companies.  The 
returns  to  policyholders  have  not  been  more  favorable,  but 
if  anything  less  satisfactory,  than  those  to  policyholders 
of  private  institutions.*  Efforts  have  been  made  from  time 
to  time  to  put  new  life  into  the  plan,  but  to  no  purpose.  A 
committee  of  Parliament  in  1882  made  a  long  report  upon 
the  subject  and  suggested  changes,  which,  if  adopted,  would 
have  made  the  post-office  experiment  practically  a  counter- 
part of  the  Prudential.  The  committee  suggested  the  em- 
ployment of  solicitors,  and  the  possible  utilization  of  letter- 
carriers  for  this  purpose.  Children,  it  was  recommended, 
should  be  admitted  at  least  at  as  low  an  age  as  eight  years, 
and  this  suggestion  was  adopted.^  There  is  no  need  for  me 
to  go  further  into  details,  and  it  is  sufficient  to  say  that  last 
year  (1905)  the  Post-office  Insurance  Department  issued 
only  741  new  policies,  against  about  750,000  policies  issued 
by  the  London  Prudential  alone.  In  forty  years  the  govern- 
ment issued  about  the  same  number  of  policies  as  the  Pru- 
dential issues  in  ten  days. \ 

The  agitation  of  the  subject  and  the  success  of  the  In- 
dustrial plan  of  insurance  in  England  attracted  much  atten- 
tion in  this  country.  Conditions  of  labor  and  life  were  much 
the  same.  A  large  number  of  so-called  fraternal  or  co- 
operative insurance  societies  were  imposing  upon  the  mass  of 
the  people,  and  failure  after  failure  brought  the  facts  to  public 


*  For  an  extended  discussion  of  the  British  system  of  post-office  life  insurance  companies,  see 
the  Spectator  of  September  14  and  28,  1905. 

t  Report  from  the  Select  Committee  on  Post-office  Annuities  and  Life  Assurance  Policies,  1882, 
pp.  6-7. 

X  During  1907  the  Post-office  Insurance  Department  issued  only  492  life  insurance  policies  and  in 
1906  only  641. 

88 


The  Practice  of  Industrial  Insurance 

attention,  and  the  cause  of  sound  workingmen's  insurance  be- 
came an  issue  which,  in  1875,  led  me  to  organize  in  this  State 
the  Prudential  Friendly  Society,  the  first  institution  of  its 
kind  in  America.  I  had  studied  the  plans  and  methods  of 
English  societies  and  companies  with  care,  and  I  had  made 
myself  familiar  with  the  various  reports  of  a  Royal  Com- 
mission, appointed  in  1871,  and  which  held  sittings  for  a 
number  of  years,  to  inquire  into  the  state  of  friendly  societies, 
burial  clubs  and  Industrial  insurance  in  England.  I  soon 
realized  that  the  existing  plans  of  so-called  fraternal  or  co- 
operative insurance  societies  in  this  country  were  defective, 
and  that  they  could  not  possibly  succeed.  My  investigations 
of  the  subject  extended  over  several  years  before  I  took 
active  steps  to  organize  a  society  upon  sound  principles, 
which,  like  the  Prudential  of  London,  should  become  a 
household  word  in  America  and  mark  the  beginning  of  a 
new  method  of  thrift,  of  saving  and  insurance,  in  time  to  be 
universal  throughout  the  United  States.  My  investigations 
and  experience  convinced  me  later  that  a  stock  company 
would  answer  the  purpose  better  than  a  mutual  organi- 
zation, and  The  Prudential  Insurance  Company  of  America 
was  the  result. 

I  have  often  had  occasion-to  review  the  steps  of  our  early 
history  as  they  are  more  fully  set  forth  in  the  "History  of 
The  Prudential"*  and  in  various  papers  and  public  addresses 
on  the  subject  of  Industrial  insurance.  It  is  a  wonderful 
history  and  without  a  parallel  in  the  whole  range  of  philan- 
thropic or  charitable  enterprises.  It  is  a  chapter  in  the 
history  of  the  American  laborers'  struggle  for  economic  inde- 
pendence as  deserving  of  credit  and  consideration  as  the 
problems  of  wages,  working  hours,  and  effective  protection 
against  accident  and  disease.  Whatever  opinion  may  be 
held,  the  facts  are  indisputable,  that  no  other  system  of 
voluntary  saving  or  insurance  can  compare  with  our  business 

*  History  of  The  Prudential  Insurance  Company  of  America,  1875-1900,  by  Frederick  L.  Hoffman, 
Prudential  Press,  1900. 

89 


Life  Insurance  and  Other  Subjects 

in  the  number  of  contributors  to  a  common  fund.  To-day 
in  this  country  there  are  some  sixteen  million  Industrial 
policies  in  force,  in  the  world  at  large  about  forty-six  million 
policies — a  most  effective  protection  against  certain  con- 
tingencies of  life  which  cannot  be  met  otherwise  than  by 
this  method  or  plan  of  Industrial  insurance.*  It  is  chiefly  in 
English-speaking  countries  that  Industrial  insurance  has  at- 
tained to  the  degree  of  a  universal  provident  institution.  But 
gradually  the  system  is  gaining  a  foothold  in  other  countries, 
and  among  them  I  may  mention  Germany,  where  compulsory 
insurance,  so-called,  is  supposed  to  meet  all  the  needs  of  the 
people,  and  yet  Industrial  insurance  companies  now  have 
over  five  million  policies  in  force.f  The  business  has  made 
progress  in  Austria,  Switzerland,  Norway,  Denmark,  and 
other  states  of  continental  Europe.  It  has  reached  a  compar- 
atively high  degree  of  development  in  Australia,  in  Canada, 
and  even  in  South  Africa.  Everywhere  the  foundation  prin- 
ciples are  the  same,  everywhere  the  business  is  chiefly 
conducted  by  stock  companies  and  upon  the  plan  of  weekly 
contributions  collected  from  the  houses  of  the  insured.  So 
much  may  be  said  in  brief  for  Industrial  insurance  as  a 
world-wide  method  of  thrift  and  protection,  as  a  universal 
provident  institution  without  a  parallel  in  the  history  of 
commercial  and  philanthropic  enterprises. 

Previous  to  the  introduction  of  Industrial  insurance  as 
a  method  of  family  protection,  the  wage-earning  element  of 
the  population  was  compelled  to  rely  more  or  less  upon  in- 
secure co-operative  insurance  societies  or  public  charity  for 
aid  and  assistance  in  the  event  of  death.  To-day,  happily, 
this  necessity  no  longer  exists.  To-day  the  protection  of 
the  family  by  life  insurance  is  recognized  to  be  a  social  and 
civic  duty,  and  a  pauper  burial  is  held  to  be  a  needless  dis- 
grace.   Pauperism  as  such  has  materially  declined.    The  ratio 

*  On  December  31,  1908,  there  were  approximately  58,000,000  Industrial  policies  in  force  in  the 
world  and  about  19,688,000  of  that  total  were  in  force  in  the  United  States. 

t  For  an  extended  article  on  Industrial  insurance  in  Germany,  see  the  American  Underwriter  for 
June,  1908. 

go 


The  Practice  of  Industrial  Insurance 

of  persons  in  almshouses  in  the  United  States  was  13  per 
10,000  in  1880,  against  only  10  in  1903,  according  to  the 
most  recent  data  published  by  the  Federal  government.* 
If  the  earlier  ratio  prevailed  at  the  present  time  there  would 
be  24,000  more  paupers  in  almshouses  than  is  actually  the 
case.  But  in  New  Jersey  the  rate  has  fallen  from  19  per 
10,000  in  1890  to  less  than  10  in  1903 — the  lowest  point 
reached  by  any  State  of  the  North  Atlantic  division. 
We  may  rightfully  claim  some  of  the  credit  for  this  im- 
provement in  the  condition  of  the  poor  in  American  cities. 
We  claim,  upon  the  facts  of  our  experience,  that  we  have, 
in  a  large  measure,  educated  the  masses  in  the  first  principles 
of  saving  and  insurance.  We  claim  that  the  good  resulting 
from  this  method  of  thrift  has  powerfully  reacted  upon  the 
entire  social  economy  of  the  people  and  that  millions  to-day 
save  and  invest,  who,  but  for  the  persistent  teachings  of  In- 
dustrial insurance,  would  squander  their  money  or  waste 
their  surplus  funds,  as  was  common  before  Industrial  insur- 
ance came  into  existence. 

I  have  spoken  of  the  decline  in  pauperism  and  of  the 
relative  decrease  in  the  number  of  persons  in  almshouses. 
I  may  go  further  and  call  attention  to  the  remarkable  decline 
in  the  pauper  burial  rate  of  American  cities.  We  do  not 
insure  the  lowest  pauper  element — if  for  no  other  reason, 
than  the  self-evident  one  that  this  class  is  without  the 
means  to  pay  the  premiums  with  regularity — but  we  do  insure 
a  large  proportion  of  comparatively  poor  people,  who,  but  for 
this  system  of  insurance,  would  be  in  constant  danger  of  be- 
coming public  burdens  in  the  event  of  a  death  in  the  family, 
of  father,  mother,  or  child.  We  offer  to  these  people  the  only 
effective  means  yet  devised  to  provide  for  their  own  needs  at 
their  own  cost,  by  a  slight  deduction  from  their  weekly  in- 
come. The  excellent  results  of  the  system  are  proved  by  the 
pauper  statistics  of  large  cities.     The  average  annual  pauper 

*  Paupers  in  Almshouses,  1904,  Washington,  D.  C,  1906 — special  report  of  the  Bureau  of  the 
Census,  prepared  by  Mr.  John  Koren. 

91 


Life  Insurance  and  Other  Subjects 

burial  rate  before  Industrial  insurance  came  into  existence 
was  23.4  per  10,000  of  population;  it  had  fallen  to  15.6  by 
1890,  and  to  1 1.8  by  1904.  Upon  the  lowest  estimate  of 
expense  the  annual  saving  to  American  tax-payers  on  ac- 
count of  this  reduction  is  $250,000  a  year.  At  least  30,000 
persons  are  now  buried  annually,  without  state  or  charitable 
assistance,  who  would  be  buried  in  the  potter's  field  if  the 
present  burial  rate  of  paupers  were  the  same  as  the  rate  pre- 
vailing before  the  introduction  of  Industrial  insurance. 

This  fact  alone  would  justify  the  system  of  Industrial 
insurance,  if  for  no  other  reason  than  that  it  makes  for  a 
higher  standard  of  life,  for  increased  self-respect  among  a 
large  class  of  people,  struggling  manfully  to  elevate  them- 
selves from  a  lower  to  a  higher  scale  of  living.  The  self- 
respect  of  the  poor  and  of  the  moderately  well-to-do  is  ma- 
terially raised  by  the  consciousness  that  in  the  most  solemn 
hours  of  life  the  sorrow  and  suffering  are  not  intensified  by  a 
sense  of  impending  disgrace  incurred  in  a  burial  in  the 
potter's  field.  If  Industrial  insurance  had  done  no  more 
than  this,  it  would  fully  have  justified  its  existence.  But 
this  is  a  comparatively  small  matter  when  we  take  into 
account  the  aggregate  of  benefits  resulting  from  this  form 
of  insurance.  Above  all  would  I  place  the  education  in 
sound  insurance  and  in  the  value  of  investment  and  the 
enhanced  faith  in  the  value  of  property,  which  sooner  or  later 
lead  to  saving  and  insurance  and  investment  in  many  other 
directions. 

For  thirty  years  our  agents  have  been  teaching  to  millions 
of  men  and  women  the  first  principles  in  the  practice  of 
sound  life  insurance.  From  the  smallest  beginnings  the 
business  has  developed  into  one  of  enormous  proportions. 
Commencing  with  a  five-cent  or  ten-cent  policy,  millions  of 
wage-earners  have  thus  made  their  first  start  in  the  struggle 
for  economic  security,  concluding  with  a  savings-bank  account 
or  an  Ordinary  policy  sufficient  in  amount  to  carry  the  family 

92 


The  Practice  of  Industrial  Insurance 

over  a  period  of  want.  As  early  as  1886  The  Prudential 
found  it  necessary  to  take  this  tendency  into  account,  yield- 
ing to  the  lesson  of  experience  and  the  pressure  of  its  agents 
to  issue  Ordinary  policies  to  Industrial  policyholders.  The 
demand  was  specific  and  reasonable.  We  at  first  were 
apprehensive,  and  we  therefore  commenced  on  a  small  scale. 
It  required  some  years  to  educate  our  agency  force  to  the 
new  conditions,  but  in  time  we  perfected  our  present  system, 
under  which  every  Industrial  agent  writes  Ordinary  insur- 
ance, chiefly  among  the  Industrial  policyholders.  So  suc- 
cessful have  we  been  in  this  respect  that  last  year,  1905,  of 
our  total  issue  of  Ordinary  business  64.5  per  cent,  was 
written  by  Industrial  agents,  and  of  all  the  Ordinary  busi- 
ness in  force  60.1  per  cent,  has  been  secured  by  our  Industrial 
field  force. 

What  has  been  the  result  ?  The  total  amount  of  Ordi- 
nary insurance  in  force  has  increased  enormously.  The 
three  principal  Industrial  companies  have  to-day  nearly  one 
million  Ordinary  policies  in  force  for  the  sum  of  nearly  one 
billion  dollars.  Most  of  this  insurance  protection  is  on  the 
lives  of  workingmen,  or  wage-earners — men  of  small  means 
and  small  income.  The  average  policy  is  for  about  one 
thousand  dollars,  a  substantial  sum  of  money,  capital  in  the 
true  sense  of  the  word,  made  readily  available  at  a  time  when 
other  resources  usually  fail  or  come  to  an  end.  This  is  of 
immense  value  as  a  means  of  family  protection,  as  providing 
funds  for  education,  as  security  against  the  loss  of  a  home, 
against  burdensome  debt,  and  even  against  the  poorhouse 
as  a  last  resort.  You  cannot  separate  this  result  from  In- 
dustrial insurance.  It  is  an  integral  part  of  the  system  to- 
day; a  natural  consequence  of  the  education  in  thrift  and 
systematic  saving  of  small  amounts,  the  one  method  of  in- 
surance being  as  important,  and  in  fact  as  indispensable,  as 
the  other. 

When  Industrial  insurance  was  introduced  in  New  Jersey 

93 


Life  Insurance  and  Other  Subjects 

in  1875,  life  insurance  progress  was  almost  at  a  standstill, 
and  many  years  of  patient  effort  were  necessary  to  re- 
store public  confidence  in  these  useful  institutions.  The 
failure  of  the  New  Jersey  Mutual,  with  its  history  of  fraud 
and  mismanagement,  would  ordinarily  have  been  sufficient 
to  cast  the  shadow  of  discredit  upon  any  form  of  thrift,  how- 
ever meritorious  otherwise;  but  countless  benefit  societies, 
so-called,  workingmen's  insurance  schemes  of  all  kinds, 
rising  rapidly  in  public  favor,  reaching  a  maximum  point  of 
growth,  and  then  collapsing,  to  the  loss  and  grief  of  the  mem- 
bers, had  undermined  the  faith  of  the  working  people  in  the 
intrinsic  value  of  all  forms  or  methods  of  insurance.  What 
the  London  Prudential  had  done  for  the  English  working- 
men,  The  Prudential  Insurance  Company  of  America  did 
for  the  wage-earners  of  the  United  States.  The  cause  of 
genuine  thrift  was  advanced  to  a  point  where  the  true  merits 
of  life  insurance  were  recognized,  where  its  value  was  clearly 
proved,  and  where  a  return  to  the  older  and  insecure  condi- 
tions of  helpless  dependence  was  made  forever  impossible. 
The  growth  of  the  business  since  that  time  is  a  matter 
of  official  record.  In  1880  the  number  of  Ordinary  policies 
in  force  in  New  Jersey  was  20,350,  or  $37  of  insurance  per 
capita.  By  1890  this  had  increased  to  34,605  policies,  or 
$62  per  capita,  and  by  1905  to  165,109  policies,  or  $141  per 
capita.  Even  greater  have  been  the  results  in  the  Industrial 
branch.  From  nothing  at  the  beginning,  in  1875,  the  busi- 
ness progressed  to  248,659  policies  in  1885,  1,268,360  policies 
in  1900,  and  1,687,885  policies  in  1905.  The  present  amount 
of  Industrial  insurance  protection  upon  the  lives  of  the  peo- 
ple of  this  State  (New  Jersey)  is  $212,214,727,  chiefly  with 
four  companies,  The  Prudential  and  the  Colonial,  both  of  this 
State,  the  Metropolitan,  of  New  York,  and  the  John  Han- 
cock Mutual,  of  Massachusetts.  About  nine  hundred  thou- 
sand Industrial  policies,  among  a  little  more  than  two  million 
population,  are  in  force  with  The  Prudential  alone.    In  Essex 

94 


The  Practice  of  Industrial  Insurance 

county  The  Prudential  has  over  a  quarter  of  a  million  Indus- 
trial policies  in  force  among  a  population  of  something  over 
four  hundred  thousand.  No  other  section  of  the  United  States 
can  show  better  results.  In  no  other  State  is  insurance,  both 
Ordinary  and  Industrial,  so  universal  and  so  generally  in 
favor.  The  record  speaks  for  itself  and  requires  no  further 
comment,  but  from  the  lakes  of  the  Jersey  hills  to  Cape  May 
practically  every  other  household  is  a  patron  of  our  Company, 
every  family  is  more  or  less  interested,  and  two  workingmen 
out  of  every  three  are  Prudential  policyholders.  This  is  a 
record,  I  believe,  without  parallel  in  insurance  history. 

The  figures  quoted  emphasize  the  assertion  that  Indus- 
trial insurance  is  family  insurance,  including  men  and 
women,  and  children  above  the  age  of  one  year.  Objections 
have  been  raised  against  the  practice  of  issuing  small  policies 
upon  the  lives  of  children,  but  the  objectors  have  never,  to 
my  knowledge,  sustained  their  views  by  facts  and  evidence 
deserving  of  serious  consideration.  Generally  reference  has 
been  made  to  an  alleged  case  of  murder  for  burial  money 
during  the  early  forties,  a  mention  of  which,  by  Thomas 
Carlyle,  in  "Past  and  Present,"  is  probably  the  sole  source 
of  information  relied  upon.*  The  proof  was  not  conclusive 
even  in  that  classic  case  of  long  ago,  and  no  proof  has  since 
been  produced  that  the  system  of  issuing  policies  upon  the 
lives  of  children  has  been  injurious  to  child  life  and  well- 
being.  With  a  recklessness  unworthy  of  men  otherwise  care- 
ful and  deliberate,  a  few  writers  have  cast  serious  reflections, 
not  only  upon  the  companies  transacting  Industrial  insur- 
ance, but  even  more  so  upon  the  millions  of  wage-earners, 
men  of  industry  and  toil,  who  for  years  have  found  this  form 
of  insurance  best  adapted  to  their  needs.f 

Little  indeed  do  these  men  know  of  the  real  life  of  the 

*  Past  and  Present,  by  Thomas  Carlyle,  centenary  edition.  New  York,  1897,  vol.  X,  p.  4,  first 
published  in  1843.  See  also  Kay's  Social  Condition  and  Education  of  the  People  in  England,  New  York, 
1863,  pp.  82-94. 

t  For  a  full  statement  of  the  controversy  on  this  subject,  see  Life  Insurance  of  Children,  by  Fred- 
erick L.  Hoffman.  Newark,  1903. 

95 


Life  Insurance  and  Other  Subjects 

people,  of  their  motives  for  sacrifice  and  of  their  efforts  to 
attain  to  a  higher  standard  of  life,  efforts  far  transcending 
in  pure  unselfishness  any  corresponding  desire  among  the 
more  prosperous  and  well-to-do.  More  truly  has  a  keen 
and  impartial  inquirer,  in  behalf  of  the  United  States  De- 
partment of  Labor,  said:  "These  figures  show  that  insurance 
is  held  in  high  esteem,  but  they  do  not  tell  how  great  a  moral 
force  it  is  in  the  lives  of  the  poor.  How  is  it  that  people 
who  are  barely  holding  soul  and  body  together,  and  who  are 
so  sorely  pressed  by  the  demands  of  the  present,  will  sur- 
render so  large  a  part  of  the  income,  sometimes  a  tithe  of  it, 
to  the  purchase  of  a  benefit  that  can  accrue  only  in  the  future  ? 
The  sentiment  which  prompts  the  poor  to  invest  in  insurance 
is  akin  to  piety;  if  death  should  come  into  the  family  they 
want  the  household  to  be  protected  from  harsh  and  profane 
influences  and  they  want  the  departed  one  to  receive  a  de- 
cent burial."*  And  this  view  we  know,  in  the  light  of  thirty 
years'  experience,  to  be  the  absolute  and  indisputable  truth. 
The  facts  in  the  case  are  that  the  amount  of  the  average 
claim  paid  in  the  case  of  insured  children  of  ages  under  ten  is 
less  than  thirty  dollars,  while  in  comparison  the  average  burial 
expenses  of  a  child  are  forty  dollars,  or  more.  The  amounts 
of  insurance  which  can  be  obtained  are  strictly  limited,  and  no 
premium  higher  than  ten  cents  per  week  is  received  upon  the 
life  of  a  child.  The  subject  has  several  times  been  carefully 
investigated  by  Parliament  in  England,  in  different  States 
of  this  country,  and  in  Canada,  but  no  legislative  verdict  is 
on  record  which  sustains  the  false  and  even  malicious  allega- 
tion of  wrong  and  crime  against  the  wage-earners  of  this 
and  other  countries.  In  the  commonwealth  of  Australia 
the  whole  subject  quite  recently  received  exhaustive  con- 
sideration, and,  after  discussing  every  phase  of  it  in  Parlia- 
ment, a  bill  was  passed  in  which  the  specific  amounts  allowed 
to  be  granted  were  in  strict  conformity  with  the  office  practice 

*  Bulletin  of  the  Bureau  of  Labor,  No.  64,  May,  1906,  pp.  613  and  614. 

96 


The  Practice  of  Industrial  Insurance 

of  the  companies,  and  about  the  same  as  the  maximum 
amounts  which  can  be  insured  for  in  this  country.* 

In  this  connection  I  may  call  your  attention  to  the  fact 
that  although  under  the  original  plan  of  Mr.  Gladstone  the 
British  system  of  post-office  insurance  fixed  the  minimum 
age  at  sixteen,  the  special  committee  of  1882  recommended 
a  material  change  in  this  respect  and  said:  "As  regards 
the  minimum  age,  it  has  been  reported  that  in  the  case  of 
these  small  insurances,  which  are  chiefly  made  the  object  of 
paying  funeral  and  medical  expenses  and  providing  nursing, 
the  motive  which  prompts  a  father  or  mother  to  insure  their 
own  lives  must  make  them  equally  desirous  to  insure  the 
lives  of  their  children.  Your  committee,  therefore,  recom- 
mend that  the  insurances  for  small  amounts,  say  not 
exceeding  ^5,  should  be  permitted  in  the  case  of  children 
between  eight  and  fourteen  years."  To  this  significant  state- 
ment the  committee  add:  "In  recommending  this  extension 
of  insurance  to  children,  your  committee  attribute  much  im- 
portance to  the  encouragement  which  may  thus  be  given  to 
continue  insurance  in  after  life."  The  recommendation,  I 
may  add,  was  adopted.*}" 

I  may  also  direct  your  attention  to  another  important 
fact  which  I  do  not  think  is  generally  known.  The  Salva- 
tion Army  in  England  has  for  a  number  of  years  transacted 
Industrial  insurance  as  a  distinct  branch  of  its  philanthropic 
enterprise,  but  upon  a  business  basis  and  with  rates  and 
policy  conditions  about  the  same  as  those  of  the  strictly 
commercial  companies  like  the  Prudential,  the  Pearl,  or 
the  British  Workmen's.  In  1901  the  society  had  266,000 
Industrial  policies  in  force,  and  now  has  probably  not  far 
from  half  a  million.  Although  General  Booth  had  called 
attention  to  the  allegations  of  child-murder  for  insurance 
money  in  his  well-known    book,  "In  Darkest  England  and 

*  Parliamentary  debates.  Commonwealth  of  Australia,  session  1904-1905. 

t  Report  from  the  Select  Committee  on  Post-office  Annuities  and  Life  Assurance  Policies,  London, 
1882. 

97 


Life  Insurance  and  Other  Subjects 

the  Way  Out"  (p.  83),  the  insurance  branch  when  estab- 
lished followed  private  insurance  companies  in  all  details, 
including  children,  even  from  their  birth,  as  insurable 
members  of  the  family.  From  time  to  time  the  Salvation 
Army  has  publicly  discussed  this  subject  and  the  suggested 
Parliamentary  prohibition  of  the  practice.  After  calling  atten- 
tion to  the  words  of  the  General,  that  "the  abuse  of  a  thing 
is  no  argument  against  its  use,"  it  was  stated,  in  1900,  that 
"it  would  be  just  as  reasonable  to  prohibit  chemists  from 
dealing  with  poisons,  which  are  admittedly  useful  in  cer- 
tain quantities,  because  of  suicide  through  improper  use;  or 
to  prohibit  people  from  riding  a  bicycle  because  there  have 
been  some  fatal  accidents.  There  never  has  been  any  legal, 
or,  indeed,  any  other  proof  of  abuse  of  child  life  assurance  to 
justify  any  change  in  the  present  law."  I  do  not  think  that 
any  one  will  question  the  sincerity  and  sound  common  sense 
of  this  view,  expressed  by  an  agency  for  social  reform  which 
has  the  universal  approbation  of  mankind  and  which,  among 
other  efforts  to  ameliorate  the  condition  of  the  poor,  has 
found  it  necessary  to  adopt  the  system  of  Industrial  insur- 
ance in  all  its  essentials  as  it  has  been  carried  on  for  many 
years  by  private  companies  in  England  and  in  the  United 
States.* 

I  have  called  your  attention  to  the  fact  that  in  this  State 
(New  Jersey)  Industrial  insurance  has  assumed  proportions 
equaled  in  no  other  State,  and  I  might  have  gone  further 
and  said  that  in  the  city  of  Newark  there  are  whole  sections 
and  blocks  of  houses  where  from  60  per  cent,  to  95  per  cent, 
of  all  the  people  are  industrially  insured.  It  is  safe  to 
say  that  of  the  entire  child  population  in  this  city  the  pre- 
ponderating majority  are  insured,  yet  during  thirty  years  of 
active  business  operations  there  has  never  been  a  single  case 
of  alleged  child-murder  or  neglect  on  account  of  insurance  in 
this  city.     In  this  State  as  a  whole  the  mortality  rate  of 

*  Assurance,  the  official  gazette  of  the  life  insurance  department  of  the  Salvation  Army,  vol.  Ill, 
p.  224,  London,  December,  1900. 


The  Practice  of  Industrial  Insurance 

children  is  to-day  less  than  half  of  what  it  was  in  1879,  when 
deaths  were  first  systematically  reported  by  the  State.  Be- 
fore 1875  the  death  rate  of  Newark  was  30  per  1,000  and 
the  deaths  of  children  under  five  formed  50.5  per  cent,  of  the 
whole  mortality.  The  death  rate  in  1905  was  17.5  per  1,000, 
and  only  about  31  per  cent,  were  deaths  of  children  under 
five.  What  is  true  of  Newark  is  true,  more  or  less,  of  every 
large  city  in  New  Jersey  and  in  the  United  States. 

In  the  thirty  years  since  we  have  been  in  business  many 
substitutes  for  Industrial  insurance  have  been  suggested  and 
the  field  has  always  been  open  to  any  company  which  would 
offer  a  more  attractive,  cheaper,  or  otherwise  more  satisfac- 
tory plan.  Time  and  again  new  propositions  have  been 
brought  forward,  but  not  one  has  been  successful.  These 
plans  and  suggestions  have  necessarily  received  our  careful 
consideration.  It  has  often  been  suggested  that  the  pre- 
miums should  be  collected  monthly,  but  the  many  companies 
which  transact  insurance  on  the  monthly-payment  plan 
have  failed  to  reach  even  a  fair  proportion  of  the  mass  of 
the  people.  We  adhere  to  the  fundamental  principle  of  In- 
dustrial insurance,  which  requires  its  adaptation  to  the  needs 
and  conditions  of  the  whole  wage-earning  population.  It  is 
this  which  makes  it  a  truly  democratic  institution;  it  is  this 
which  gives  to  it  the  character  of  a  universal  provident  fund. 
Single-premium-payment  insurance  has  been  suggested,  by 
which  every  premium  would  purchase  a  small,  but  specific, 
sum  of  insurance  payable  in  the  event  of  death.  We  have 
looked  into  this  matter;  it  has  been  tried  by  some  companies, 
but  the  people  do  not  take  to  it — they  simply  do  not  seem  to 
want  it.  It  has  also  been  suggested  that  we  combine  our 
form  of  insurance  with  a  provision  for  a  benefit  in  the  case 
of  sickness.  We  tried  that  experiment  for  several  years  when 
we  commenced  operations,  and  found  it  impossible  to 
conduct  the  business  with  safety  and  security,  so  we  aban- 
doned it.     The  Prudential  of  England  and  other  Industrial 

99 


Life  Insurance  and  Other  Subjects 

companies  have  tried  sickness  insurance  and  found  it  im- 
possible. The  British  government  considered  the  subject, 
but  found  this  suggestion  impracticable.  It  has  also  been 
suggested  that  we  should  issue  policies  for  deferred  annu- 
ities, payable  in  old  age,  say,  after  sixty.  We  have  carefully 
considered  this  also,  but  find  that  the  weekly-premium-pay- 
ment system  under  present  conditions  seems  to  preclude  the 
adoption  of  this  suggestion  as  a  practical  solution.  Indus- 
trial insurance  is  primarily  insurance  for  a  definite  sum 
payable  in  the  event  of  death,  for  the  purpose  of  paying 
the  cost  of  burial,  cemetery  plots,  nursing,  last  illness,  etc. 
Only  as  a  secondary  consideration  does  the  element  of  possi- 
ble investment  enter  into  the  proposition,  or  the  laudable 
attempt  to  provide  for  the  immediate  support  of  surviving 
members  of  the  family.  The  average  premium  of  ten  cents 
a  week  cannot  perform  a  miracle.  Yet  even  as  the  matter 
stands,  we  estimate  that  annually  at  least  $12,000,000  of  the 
claim-payments  of  Industrial  companies  remain  as  a  surplus 
or  provision  for  the  more  pressing  needs  of  surviving  mem- 
bers of  the  family  after  the  payment  of  burial  and  other 
incidental  expenses.  In  other  words,  all  of  the  proposed 
substitutes  for  Industrial  insurance  have  in  theory  or  in  actual 
practice  fallen  short  of  all  the  requirements  to  which  Indus- 
trial insurance  primarily  owes  its  world-wide  success. 

It  has,  for  illustration,  been  suggested  to  us  that  we 
should  allow  a  deduction  to  be  made  equal  to  the  collector's 
commission  in  cases  where  Industrial  policyholders  prefer 
to  pay  the  premiums  at  our  local  office.  This  plan  has 
been  tried  by  the  London  Prudential  and  found  impractica- 
ble.* The  business  of  Industrial  insurance  is  one  of  vast 
detail,  but  simple  in  its  general  elements,  and  it  is  chiefly 
because  of  uniformity  in  method  and  of  strict  adherence 
to  definite  rules  and  regulations,  admitting  of  no  exceptions, 
that  the  enormous  mass  of  necessary  office  transactions  is 

*  History  of  the  Prudential  Assurance  Company.  London,  p.  9. 

100 


The  Practice  of  Industrial  Insurance 

reduced  to  a  working  basis.  If  we  were  to  allow  exceptions 
to  be  made  in  matters  of  this  kind,  hopeless  confusion  would 
be  the  result,  not  only  in  the  field,  but  also  in  our  office  ac- 
counts. For  a  week  or  a  month  the  premiums  would  proba- 
bly be  paid  at  the  office,  for  another  week  or  month  the  de- 
mand would  be  for  the  collection  of  the  premium  from  the 
house  of  the  insured.  Failure  to  make  the  premium-pay- 
ment at  the  office  would  still  require  the  services  of  an  agent 
to  call  upon  the  insured,  and  thus,  for  practical  purposes, 
instead  of  there  being  a  saving  in  expense,  the  probability 
is  that  the  expense  would  be  increased.  That  was  the  con- 
dition in  England,  and  it  is  reasonable  to  suppose  that  in 
the  nature  of  the  case  the  same  would  be  true  here. 

Then,  again,  it  has  been  proposed  that  the  State  should 
undertake  this  form  of  insurance.  Several  States  are  now 
making  inquiry  into  the  subject,  and  in  Illinois  a  modified 
form  of  compulsory  labor  insurance  is  under  consideration. 
New  Zealand  tried  the  experiment  for  a  number  of  years, 
but  abandoned  the  effort.*  The  British  government  has 
been  urged  to  extend  its  post-office  system  by  making  letter- 
carriers  insurance  solicitors  and  collectors  of  weekly  premi- 
ums, but  it  was  made  clear  to  the  Committee  of  Inquiry  in 
1882  that  if  this  were  done  the  number  of  carriers  would 
have  to  be  largely  increased  and  their  chief  duty,  of  letter  de- 
livery, would  become  subordinate  to  the  secondary  purpose 
of  insurance. j"  This  much,  however,  is  clear,  that  Industrial 
insurance  cannot  be  carried  on  without  solicitors  or  collect- 
ors. The  agent  is  the  life  of  the  business.  The  agent  is 
indispensable,  not  only  to  secure  the  business,  not  only  to 

*  For  an  extended  discussion  of  government  life  insurance  of  New  Zealand,  see  Spectator,  New 
York  insurance  periodical,  June  8  and  22,  1905. 

t  In  1908  a  report  was  made  by  the  Departmental  Committee  on  the  Encouragement  of  the  Life 
Insurance  System  of  the  Post-office,  in  which  there  occurs  the  following  significant  statement  (p.  5): 
"It  is  a  matter  of  common  knowledge  that  the  budget  of  the  wage-earning  classes  is  calculated  on  a 
weekly  basis,  and  it  is  essential  to  recognize  this  in  any  scheme  which  is  to  appeal  to  and  be  well  received 
by  such  classes;  and  we  think  that  it  should  be  embodied  in  any  plan  for  providing  further  insurance 
facilities.  We  are  not  prepared  to  suggest  a  house-to-house  weekly  collection  of  premiums  such  as  is 
practised  by  the  industrial  insurance  companies,  as  we  recognize  that  any  such  arrangement  would  very 
greatly  increase  the  expenses  of  the  Post-office  system;  but  we  think  that  an  approximate  equivalent  to 
the  weekly  collection  of  premiums  might  be  provided  by  other  means,  possibly  by  a  development  of  the 
stamp-slip  system  at  present  in  use  in  connection  with  savings  bank  accounts." 


IOI 


Life  Insurance  and  Other  Subjects 

collect  the  premiums,  but  to  keep  the  insurance  in  force. 
His  interest  in  the  continuance  of  the  insurance  in  force 
is  as  real  as  the  interests  of  the  policyholders  and  the 
company.  Government  with  all  its  power  cannot  transact 
Industrial  insurance  except  by  adopting  the  methods  of  the 
companies.  It  could  offer  no  greater  security;  it  would 
probably  operate  at  a  greater  expense.  The  British  govern- 
ment rates  in  the  post-office  system  are  not  lower  than  the 
rates  of  the  British  Prudential.  They  are  even  higher  than 
the  non-participating  rates  of  the  American  Prudential.  The 
rates  of  the  Industrial  branch  of  the  New  Zealand  Govern- 
ment Life  Insurance  Department  were  not  essentially 
different  from  those  of  private  companies.  The  latter  have 
been  successful  where  the  former  has  failed.* 

The  only  alternative  is  compulsion.  The  German  gov- 
ernment has  worked  out  an  elaborate  scheme  of  working- 
men's  insurance,  but  there  is  nothing  in  this  plan  which  can 
possibly  be  suggested  as  a  solution  of  American  economic 
problems  unless  we  are  also  willing  to  introduce  radical 
changes  in  the  theory  and  form  of  our  government.  Compul- 
sion is  the  foundation  principle  of  the  German  system  and 
insurance  is  only  a  catchword.  The  German  system  is  not 
insurance,  but,  as  has  truly  been  said,  it  is  a  modified  method 
of  employers'  liability  on  the  one  hand,  and  an  ingenious 
method  of  poor-law  administration  on  the  other.  The  founda- 
tion principle  is  that  the  industry  in  which  a  man  is  employed 
should  stand  a  large  share  of  the  burden — ostensibly  the 
employer  chiefly,  but  finally  the  expense,  or  a  large  share 
of  it,  falls  upon  wages.  The  basis  for  the  workman's  con- 
tribution is  not  the  rate  of  mortality  among  the  class  to 
which  he  belongs,  but  his  annual  rate  of  compensation,  or 
wages.  The  employer  pays  a  part,  the  employee  contributes, 
and  the  state  makes  up  the  rest.  It  is  an  admirable  system 
in  theory,  no  doubt;  it  has  its  attraction  for  social  reformers; 

*  Government  Life  Insurance  in  New  Zealand,  Spectator,  June  22,  1905. 

102 


The  Practice  of  Industrial  Insurance 

it  is,  apparently,  adapted  to  the  paternal  state;  but  I  am 
confident,  after  a  careful  study  of  the  matter,  that  it  is  in- 
applicable to  the  needs  and  requirements  of  a  free  people  in 
a  free  democracy  like  the  American  Republic. 

The  impracticable  character  of  these  suggestions  of  sub- 
stitutes for  Industrial  insurance  is  self-evident.  Insurance 
as  a  social  institution  is  the  result  of  many  years  of  gradual 
development,  and  changes  and  improvements  in  the  system 
are  the  outcome  of  experience.  The  Industrial  con- 
tract, or  policy,  of  to-day  is  a  very  different  document  from 
the  policy  issued  in  1875.  The  Industrial  policy  now  pro- 
vides for  paid-up  insurance  after  three  years,  for  additional 
benefits  after  five  years,  for  cash  dividends  after  fifteen  years, 
and  for  cash  surrender  values  after  twenty  years.  There  are 
no  restrictions  as  to  hazardous  occupations,  residence,  and 
death  from  suicide,  consumption,  heart  disease,  etc.  Im- 
provements in  the  policy  contract  have  been  made  retroactive 
to  existing  policyholders.  Corresponding  improvements 
have  been  made  in  every  branch  of  the  business.  The 
foundation  principle  remains  the  same,  but  the  practice  has 
been  modified  in  the  light  of  experience.  That  one  word 
"experience"  comprehends  all.  Year  after  year  we  have 
learned  valuable  lessons;  year  after  year  we  have  incorporated 
these  lessons  into  our  practice.  The  record  of  these  im- 
provements is  a  part  of  our  history;  in  a  measure  it  is  the 
history  of  Industrial  insurance. 

It  is  a  record  of  which  we  are  proud.  In  no  other 
country  is  Industrial  insurance  more  popular  than  in  this, 
unless  it  is  in  England,  where  the  business  has  been  in 
existence  for  nearly  twice  the  period  of  time.  In  no  other 
country  is  Ordinary  insurance  among  Industrial  policy- 
holders as  popular  and  as  widely  in  use.  The  people  who 
are  our  patrons  and  who  have  been  premium-payers  for  many 
years  know  and  clearly  comprehend  its  value.  The  hundreds 
of  thousands  of  beneficiaries  to  whom  claims  have  been  paid 

103 


Life  Insurance  and  Other  Subjects 

are  satisfied;  the  millions  of  policyholders  who  have  received 
additional  benefits,  cash  dividends,  or  cash  surrender  values, 
are  equally  satisfied  and  make  no  complaint.  Nor  could  it 
well  be  otherwise.  The  contract  of  Industrial  insurance 
is  plain.  It  is  easily  understood.  A  child  can  add  up  its 
cost;  a  child  can  figure  out  that  the  few  who  live  to  extreme 
old  age  must  pay  in  more  than  they  can  expect  to  receive  in 
return,  but  the  people  know  equally  well  that  while  less  than 
is  paid  in  is  received  in  return  in  a  comparatively  few  cases, 
more  than  is  paid  in  in  premiums  is  received  in  return  by 
the  many  who  die  prematurely,  from  accident  or  disease. 

I  cannot  better  illustrate  this  point  than  by  referring  to  a 
few  of  the  more  striking  instances  which  emphasize  the  value 
of  Industrial  insurance  in  the  case  of  exceptional  accidents 
or  national  calamities.  The  loss  of  the  battleship  Maine,  on 
February  14,  1898,  involved  twenty-one  Industrial  policies  in 
The  Prudential.  Only  $628  had  been  paid  in  premiums,  while 
$3,529  was  paid  in  claims.  The  only  death  in  the  naval 
battle  at  Santiago,  on  July  3,  1898,  was  that  of  a  policyholder 
of  The  Prudential,  who  had  paid  $86.70  upon  two  Industrial 
policies  and  whose  heirs  received  $353.26  in  payment  of  the 
claim.  In  the  Windsor  Hotel  fire  in  New  York  we  had  a 
loss  under  an  Industrial  policy  upon  which  only  thirty  cents 
had  been  paid  in  premiums  and  under  which  we  paid  $61.50 
as  a  partial  benefit — enough  to  pay  the  funeral  expenses.  In 
a  tenement-house  fire  in  Newark,  N.  J.,  on  March  12,  1900, 
several  persons  died  who  were  Industrial  policyholders  of 
The  Prudential,  who  had  paid  $13.75  in  aggregate  premiums, 
and  whose  heirs  or  beneficiaries  received  $192.75  in  set- 
tlement of  the  claims.  In  the  great  fire  of  the  docks  of  the 
North  German  Lloyd,  at  Hoboken,  June  30,  1900,  seven 
persons  were  killed  who  were  insured  with  us  under  nine 
Industrial  policies.  Only  $325  had  been  paid  in  premiums 
and  to  the  heirs  or  beneficiaries  we  paid  $1,006.56  in  return. 
Among  those  killed  in  the  Iroquois  Theater  disaster,  twenty- 

104 


The  Practice  of  Industrial  Insurance 

three  were  Industrial  policyholders  of  The  Prudential,  who 
had  paid  $515  in  premiums,  in  return  for  which  we  paid 
$3,423  to  the  beneficiaries.  I  could  give  hundreds  of  similar 
illustrations,  but  I  conclude  with  a  reference  to  the  Slocum 
disaster,  in  which  212  persons  perished  who  were  insured 
with  The  Prudential  under  336  policies.  We  had  received 
$8,331  in  premiums,  and  we  paid  in  claims  $38,147. 

We  paid  promptly  in  these  cases,  as,  I  need  hardly  say, 
we  always  do.  Claims  are  paid  without  undue  delay,  but 
every  safeguard  is  employed  to  protect  the  interests  of  the 
Company  against  possible  imposition  and  fraud.  An  Indus- 
trial policy  is  a  promise  to  pay  a  sum  certain  in  the  event  of 
death — that  is  all  there  is  to  it — and  the  people  know  and 
understand.  In  all  these  many  years  we  have  had  very  little 
litigation.  Search,  if  you  please,  the  books  which  treat  of 
the  law  of  insurance;  look  up  the  list  of  cases  referred  to, 
and  out  of  the  thousands  of  cases  an  extremely  small  num- 
ber are  references  to  The  Prudential.  Vance*  on  the  Law 
of  Life  Insurance,  the  latest  work  on  the  subject,  cites 
about  three  thousand  cases,  of  which  only  two  are  decisions 
affecting  The  Prudential.  We  avoid  needless  litigation,  by 
policies  which  are  free  from  ambiguities  and  vexatious  re- 
strictions, but  we  safeguard  our  interests  by  making  use  of 
every  proper  means,  by  intelligent  medical  examination  and 
careful  inspection,  to  secure  a  sound  and  healthy  class  of 
risks  from  the  outset. 

From  time  to  time  we  have  made  favorable  changes  in 
our  policy  conditions  or  in  our  premium  rates,  and  in  all  cases 
we  have  made  such  changes  retroactive,  so  as  to  apply  to 
all  policyholders,  irrespective  of  the  duration  of  insurance. 
The  voluntary  concessions  to  Industrial  policyholders  which 
we  have  made  so  far  have  cost  The  Prudential  about  $6,- 
500,ooo.f     These   concessions   affect   millions  of  contracts 

*  Handbook  of  the  Law  of  Insurance,  by  William  Reynolds  Vance,  St.  Paul,  Minn.,  1904. 
t  The  voluntary  concessions  to  Industrial  policyholders  of  The  Prudential  by  December  31,  1908, 
had  cost  over  $11,486,000. 


Life  Insurance  and  Other  Subjects 

which  did  not  originally  provide  for  a  participation  in  the 
benefits  conferred.  Of  the  claims  paid  last  year,  thirty-one 
per  cent,  were  settled  upon  a  more  favorable  basis  than  the 
original  contract  called  for.  To-day  every  policy  is  a  profit- 
sharing  contract — conditional,  it  is  true,  in  some  respects,  but 
as  truly  profit-sharing  in  all  essentials  as  an  Ordinary  policy. 
Save  for  the  higher  cost,  due  to  the  high  mortality  of  the 
class  insured  and  the  expense  of  special  accommodations 
involved  in  the  collection  of  the  weekly  premiums,  there  is 
no  material  difference  between  an  Industrial  and  an  Ordi- 
nary policy  contract. 

Agents  are  as  necessary  to  the  business  of  life  insurance 
as  fuel  is  to  the  locomotive.  Without  agents  there  would 
be  no  insurance,  or  so  little  of  it  that  it  would  be  strictly  a 
class  institution  for  the  exceptionally  intelligent  or  thrifty. 
Compulsion  alone  could  overcome  the  difficulty.  Compul- 
sion in  the  United  States  is  out  of  the  question.  That  volun- 
tary thrift,  as  represented  by  insurance,  requires  the  services 
of  agents,  is  made  clear  by  the  experience  of  non-agency 
companies  in  England.  There  are  at  least  three  such  com- 
panies, of  which  the  London  Equitable  is  the  oldest,  having 
been  established  in  1762.  Other  companies  of  this  class 
are  the  London  Life,  established  in  1806,  and  the  London 
Metropolitan,  established  in  1835.  These  companies  boast 
of  their  low  expense  rate;  they  appeal  to  the  public  through 
advertising  and  in  various  other  ways,  but  their  business  is 
so  insignificant  that  they  are  strictly  class  institutions  and 
of  small  economic  value  to  the  nation.  In  1904,  for  illus- 
tration, the  London  Equitable  wrote  only  258  new  policies, 
the  London  Life  wrote  252,  and  the  London  Metropolitan 
wrote  174.  In  contrast,  the  London  Prudential,  employing 
agents  at  a  reasonable  compensation,  wrote  71,874  new 
Ordinary  policies  and  (approximately)  675,000  new  Indus- 
trial policies  during  1905,  and  the  American  Prudential 
wrote  96,355  new  Ordinary  policies  and  1,576,215  new  In- 
dustrial policies. 

106 


The  Practice  of  Industrial  Insurance 

Thus  the  agency  companies  do  the  business,  insure  the 
people,  and  bring  the  blessings  of  life  insurance  to  thousands 
and  millions  of  afflicted  homes.  The  non-agency  companies 
may  in  some  cases  offer  slightly  better  individual  advantages, 
but  these  advantages  would  disappear  at  once  if  the  com- 
panies made  a  deliberate  effort  to  secure  a  larger  share  of  new 
business.  The  differences  in  the  premium  charges  of  agency 
and  non-agency  companies  are  quite  unimportant,  however, 
when  a  fair  comparison  is  made  of  the  non-participating 
rates,  where  every  element  of  uncertainty  in  final  cost  has 
been  eliminated.  I  find,  for  illustration,  that  the  London 
Equitable,  at  age  30,  would  charge  $20.33  per  $1,000  of 
whole  life  insurance,  against  $22.58  charged  by  the  Lon- 
don Prudential  and  only  $19.77  charged  by  the  American 
Prudential.  The  assumed  advantages  of  life  insurance 
without  agents,  therefore,  do  not  materialize  upon  a  more 
careful  inquiry  into  the  facts  of  actual  conditions  and 
experience. 

The  agency  expense  is  a  necessary  and  legitimate  item 
in  the  management  of  a  progressive  life  insurance  company. 
The  chief  aim  should  be,  of  course,  to  keep  the  expense 
within  reasonable  limits.  The  Prudential  has  made  strenu- 
ous efforts  in  this  direction.  Our  expense  rate  has  been 
normal  and  below  that  of  many  other  companies,  but  time 
is  necessary  for  a  decided  improvement.  We  have  every 
reason  to  believe  that  in  the  not  far  distant  future  our  ex- 
pense rate  in  the  Industrial  branch  will  be  reduced  still 
further,  as  our  business  becomes  more  concentrated  and  as 
our  agency  force  becomes  better  educated  to  the  needs  of  the 
business  and  better  adapted  to  the  conditions  which  govern 
success.  It  is  too  early  to  say  what  the  reduction  may 
amount  to,  but  we  are  confident  that  in  time  the  Industrial 
business  will  be  secured  at  a  lower  rate  of  expenditure.  In 
the  light  of  English  experience  during  more  than  fifty  years, 
we   have   made   astonishing  progress.     We   have   perfected 

107 


Life  Insurance  and  Other  Subjects 

many  details  of  our  office  and  agency  administration,  but 
we  have  been  compelled  to  go  slowly  in  some  directions, 
since  we  could  not  take  the  risk  of  disturbing  our  entire 
organization.  With  painstaking  care  we  have  inquired  into 
the  facts  of  every  problem  and  with  patience  we  have  traced 
the  lesson  of  our  experience  out  of  the  immense  body  of 
accumulated  data,  which  to  us  are  more  safe  and  satisfactory 
guides  to  the  future  than  the  notions  or  schemes  of  individ- 
uals who  expect  a  ten-cent  weekly  premium  to  perform  a 
miracle. 

Industrial  insurance  is  life  insurance  at  retail,  and  for 
this  reason,  in  part  at  least,  the  cost  is  higher  than  in  Ordi- 
nary life  insurance,  where  the  premiums  are  payable  quar- 
terly, semi-annually,  or  annually,  and  require  to  be  sent  to 
the  office  of  the  company.  Just  as  retail  prices  are  higher 
than  wholesale  prices,  so  the  cost  of  a  commodity  is  en- 
hanced by  additional  privileges  of  accommodation  such  as 
are  represented  in  the  collection  of  the  weekly  premium  from 
the  houses  of  the  insured.  This  accommodation  is  of  great 
value  and  necessarily  requires  to  be  paid  for.  Wage-earners, 
for  self-evident  reasons,  conform  their  scale  of  living  and 
family  expenditures  to  the  weekly  principle  because  the  in- 
come is  also  upon  that  basis.  It  is  a  convenience  to  the 
workingman  to  have  the  insurance  collector  call  at  his  house 
for  the  premiums,  and  for  that  convenience  he  is  willing  to 
pay.  Efforts  which  have  been  made  to  dispense  with  col- 
lectors have  invariably  proved  a  failure.  Considering  the 
accommodation,  in  addition  to  the  insurance  protection,  In- 
dustrial insurance  is,  without  question,  one  of  the  cheapest 
of  commodities.  It  would  be  impossible  to  give  as  much  for 
the  money — as  much  convenience  and  accommodation  to 
circumstances  on  the  one  hand,  and  as  much  life  insurance 
protection  on  the  other — were  it  not  that  the  business  is 
one  of  millions  of  small  transactions  and  concentrated  in 
comparatively  small  areas.     The  fact  of  special  accommo- 

108 


The  Practice  of  Industrial  Insurance 

dation  in  the  collection  of  the  premiums  is  one  of  the 
reasons  why  Industrial  insurance  is  more  expensive  than  life 
insurance  on  the  Ordinary  plan. 

In  a  measure  Industrial  insurance  is  instalment  insur- 
ance. No  article  can  be  sold  on  the  part  payment  plan 
without  an  increase  in  the  cost.  The  facts  are  so  self-evident 
that  they  require  no  extended  explanation.  Every  article 
sold  on  the  instalment  plan  is  more  expensive  than  the  same 
article  sold  for  cash.  A  $400  piano  on  the  instalment  plan 
can  be  had  for  cash  for  probably  $300,  while  the  original 
cost  is  estimated  to  be  only  $150.  A  sewing-machine  which 
can  be  bought  for  cash  for  $20  or  $25  will  cost  from  $45  to 
$60  on  the  instalment  plan.  Coal  bought  by  the  bushel 
will  cost  $9  or  more  a  ton  against  $6.75  or  less  a  ton  when 
bought  in  the  regular  way.  Even  in  the  case  of  a  single-trip 
railway  ticket  the  cost  will  be  approximately  100  per  cent, 
greater  than  the  cost  per  trip  of  a  100-trip  ticket.  This  is 
true  of  business  generally  and  is  the  result  of  the  expense 
of  special  accommodation  and  special  risk,  whether  it  be 
the  work  of  a  ticket  agent  making  one  hundred  individual 
sales  or  of  an  Industrial  insurance  agent  making  at  least  fifty- 
two  calls  at  the  house  of  the  insured  each  year.  It  is  the 
special  accommodation  which  enhances  the  cost,  and  I 
wish  to  be  emphatic  upon  this  point,  that  the  increase 
in  cost  on  this  account  is  less  in  the  case  of  Industrial 
insurance  than  in  many  similar  commercial  transactions 
where  goods  or  articles  are  sold  on  credit  or  on  the  instal- 
ment plan. 

No  fair  comparison  can  be  made,  therefore,  of  the 
premium  charges  for  Industrial  insurance  and  those  of 
Ordinary  companies,  because  at  the  outset  the  conditions 
are  not  similar.  Not  only  is  the  special  accommodation  in 
the  one  wanting  in  the  other,  but,  what  is  of  even  greater 
importance,  the  class  of  people  insured  under  Industrial  poli- 
cies, primarily  wage-earners,  are  employed  in  industries  more 

log 


Life  Insurance  and  Other  Subjects 

or  less  subject  to  a  higher  accident,  sickness,  or  mortality 
rate  than  the  class  insured  under  Ordinary  policies.  Upon 
the  basis  of  our  Industrial  experience  we  know  that  the 
mortality  rate  of  adult  Industrial  policyholders  is  not  far 
from  being  double  the  rate  prevailing  among  Ordinary 
policyholders.  The  reason  for  this  higher  mortality  is 
readily  ascertained  upon  careful  inquiry  into  the  facts.  It  is 
in  part  due  to  the  conditions  of  life,  occupation,  environ- 
ment, and  various  other  elements  which  determine  the  dura- 
tion of  human  existence.  The  more  favorable  mortality  of 
Ordinary  policyholders  is,  in  a  large  majority  of  cases,  the 
result  of  a  more  careful  medical  selection  than  would  be 
possible  in  the  transaction  of  the  business  of  Industrial  insur- 
ance. A  very  considerable  proportion  of  those  who  are 
policyholders  in  Industrial  companies  would  not  be  accepted 
by  Ordinary  life  companies,  because  of  nativity,  occupation, 
residence,  etc.  In  other  words,  in  its  final  analysis,  the  prob- 
lem is  one  of  safe  insurance  on  the  Industrial  plan,  applicable 
to  the  mass  of  the  population,  and  of  reasonable  cost,  or 
no  insurance  at  all. 

But  it  is  argued  that  of  every  one  hundred  dollars  received 
in  premiums  we  pay  but  a  comparatively  small  proportion — 
say  33  per  cent. — in  claims,  dividends,  surrender  values,  etc. 
This  statement  is  not  sustained  by  the  recorded  facts  of  the 
business.  In  return  for  every  one  hundred  dollars  received  in 
premiums,  plus  the  interest  accumulation  and  gain  from  other 
sources,  we  return  in  due  course  of  time  the  exact  equivalent 
to  our  policyholders,  in  strict  accordance  with  the  policy  agree- 
ment. To  every  policyholder  we  pay  the  full  amount  of  his 
policy  or  whatever  there  may  be  due,  and  we  have  never  on  the 
one  hand  made  an  increase  in  our  premium  charges  nor  on 
the  other  made  a  deduction  of  a  single  dollar  from  the  face 
value  of  a  policy  not  warranted  by  the  contract  itself.  To 
one  man  we  may  pay  thirty  dollars  after  having  received 
only  fifty  cents  in  weekly  premiums,  while  to  another  we 

no 


The  Practice    of  Industrial  Insurance 

may  pay  eighty  dollars  after  having  received  as  much  as  that 
amount  in  premiums.  The  one  had  insured  in  early  life, 
with  the  prospect  of  having  to  pay  for  many  years;  the 
other  insured  near  the  age  of  sixty  or  seventy,  with  the 
prospect  of,  at  most,  having  to  pay  for  a  comparatively 
short  period  of  time.  It  is  an  inherent  absurdity  to  take 
an  individual  case  and  reason  therefrom  in  regard  to  a 
business  which  is  entirely  one  of  averages  and  which  exists 
solely  because  of  this  very  fact.  It  is  the  principle  of  asso- 
ciation which  lies  at  the  root  of  all  insurance  and  by  which 
the  many  contribute  to  a  common  fund  so  that  the  least  for- 
tunate, who  die  early,  may  enjoy  the  blessings  of  life  insur- 
ance protection  for  the  family,  in  part  without  doubt  at  the 
expense  of  those  more  fortunate  who  survive  to  old  age. 
That  is  life  insurance  pure  and  simple;  it  is  the  same  in  In- 
dustrial as  in  Ordinary  or  in  fraternal  insurance,  and  in  the 
nature  of  the  case  it  must  ever  remain  so.  The  value  of  in- 
surance lies  in  the  certainty  that  the  amount  specified  in  the 
policy  will  be  paid  in  the  event  of  death,  whether  death  occurs 
early  or  after  many  years.  Here,  again,  I  may  repeat  that 
the  people  know  and  understand  and  it  goes  without  saying 
that  they  are  sufficiently  intelligent  and  free  to  decide  in 
matters  of  this  kind — perhaps  much  more  so  than  their  ill- 
informed  critics  who  would  wantonly  destroy  this  form  of 
thrift  without  the  power  and  ability  to  furnish  a  practical  and 
better  substitute. 

One  of  the  most  important  problems  in  Industrial  insur- 
ance is  the  lapse  rate.  We  have  from  the  outset  emphasized 
in  every  way  possible  the  importance  of  policy  continuance. 
As  early  as  1880,  at  least,  and  probably  before,  we  issued 
special  instructions  to  policyholders  in  arrears,  pointing 
out  the  advantages  of  continuing,  and  emphasizing  the 
policyholders'  loss  incurred  in  terminating  the  policy 
contract.  In  thousands  of  instructions  and  letters  to  our 
policyholders  and  the  agency  force  we  have  emphasized  the 


in 


Life  Insurance  and  Other  Subjects 

importance  of  attention  to  this  point.  Had  we  never  lapsed 
a  policy  we  would  to-day  have  more  policies  in  force  than 
any  other  life  insurance  company  in  the  world.  Had  we 
never  lapsed  a  policy  we  would  be  the  richest  and  most 
prosperous  of  all  insurance  corporations.  But  lapses  are 
unavoidable — as  unavoidable  in  Industrial  as  in  Ordinary 
or  in  fraternal  insurance.  The  element  of  waste  is  com- 
mon to  all  industry,  and  our  object,  as  is  the  case  in 
all  commercial  enterprises,  is  to  reduce  waste  to  the 
lowest  possible  minimum.  We  are  making  progress  from 
year  to  year.  We  have  never  had  as  low  a  lapse  rate  as 
we  had  during  last  year.  But  we  expect  to  make  still 
further  improvements  in  this  direction.  It  is  a  question  of 
time,  as  in  all  other  commercial  problems.  But  our  records 
prove  that  year  after  year,  in  one  direction  or  another, 
improvements  have  been  effected,  important  changes  have 
been  instituted  or  liberal  concessions  have  been  made,  to 
which,  we  claim,  is  due  the  public  faith  in  Industrial  in- 
surance as  the  safest,  soundest  method  of  life  insurance  for 
the  plain  people. 

The  importance  of  the  lapse  question,  from  the  policy- 
holders' point  of  view,  however,  is  easily  and  generally  ex- 
aggerated. Lapses,  in  the  aggregate,  are  a  serious  loss  to 
the  company,  but  only  a  small  loss,  if  any,  to  the  insured. 
He  has  had  his  insurance  for  the  time  being,  and  the  special 
accommodation  in  the  collection  of  the  premium.  For 
weeks  a  solicitor  may  have  spent  a  part  of  his  time  to  write 
the  policy;  week  after  week  he  has  called  at  least  once 
for  the  premium  due,  all  without  result,  since  the  policy- 
holder has  changed  his  mind  and  declines  to  take  the  policy. 
We  allow  four  weeks  of  grace,  after  which  the  policy  must 
be  lapsed.  Every  such  lapse  means  also  a  loss  to  the 
agent,  whose  special  salary  is  based  upon  net  increase. 
Of  the  lapses,  37  per  cent,  have  been  less  than  thirteen  weeks 
in  force.     Of  those  which  have  been  more  than  three  years 

112 


The  Practice  of  Industrial  Insurance 

in  force  nearly  50  per  cent,  are  revived.  We  make  every 
reasonable  effort  to  induce  lapsed  policyholders  to  revive 
their  policies,  even  to  the  extent  of  not  charging  for  the 
medical  examination.  We  even  go  further  and  advance  the 
money  due,  in  the  form  of  a  lien,  and  we  have  $26,000,000 
of  insurance  in  force  under  such  liens,  which  are  deducted 
from  the  amount  payable  in  the  event  of  death.  We  cannot 
do  much  more,  for  we  are  governed  by  the  same  inexorable 
laws  of  business  which  determine  success  in  commercial 
affairs  generally. 

While  lapses  are  a  serious  problem,  every  year  finds  the 
Company  further  advanced  and  more  popular  than  the  year 
before.  In  1890  we  had  1,228,332  Industrial  policies  in 
force,  3,908,622  in  1900,  and  on  December  31,  1905,  we  had 
a  total  of  6,117,575  Industrial  and  372,940  Ordinary  policies 
on  our  books.*  We  direct  attention  to  this  fact  because  it  is 
of  transcending  importance.  It  shows  that  a  large  number 
of  our  policyholders  persist  and  are  constant,  feeling  secure 
and  satisfied  that  in  the  event  of  death  not  only  will  the  sum 
specified  in  the  policy  be  paid  without  question,  but  that  in 
all  probability  a  substantial  addition  will  be  made  as  the 
result  of  special  benefits  or  privileges  or  because  of  our 
voluntary  concessions.  In  some  cases  the  result  is  not  as 
satisfactory  as  we  might  wish.  We  emphasize  in  every  way 
the  importance  of  insurance  in  early  life;  we,  however,  can- 
not very  well  refuse  to  insure  those  who  are  of  older  ages, 
just  because  if  they  should  live  for  many  years  they  would 
pay  in  more  than  they  would  receive  in  return.  We  accept 
risks  up  to  the  age  of  70  years  next  birthday,  but  we  do  this 
only  to  round  out  our  system  of  family  insurance.  We  would 
much  prefer  that  all  should  insure  early,  but  in  the  nature 
of  the  case  this  cannot  be.  Many  who  have  been  well-to-do  in 
middle  life,  but  who  become  poor  in  old  age,  find  in  an  Indus- 
trial policy  the  only  safeguard  against  a  burial  in  the  potter's 

*  On  December  31,  1908,  there  were  7,258,704  Industrial  and  473,035  Ordinary  policies  in  force 
with  The  Prudential. 

H3 


Life  Insurance  and  Other  Subjects 

field.  We  cannot  as  a  matter  of  business  policy  or  simple  hu- 
manity refuse  to  issue  policies  to  persons,  say  over  60,  but, 
while  hardships  occur  in  isolated  cases  of  extreme  longevity, 
we  have  generally  taken  the  facts  into  consideration,  and  as 
far  as  possible  and  advisable  have  dealt  liberally  with  such 
exceptions  upon  their  merits.  In  1904  we  introduced  a  new 
feature,  which  has  proved  of  great  value.  All  who  attain 
to  age  80  and  who  have  paid  premiums  for  ten  years  are  re- 
lieved from  further  payment  thereafter,  paid-up  insurance 
for  the  full  amount  of  the  policies  being  issued.  In  this 
and  many  other  directions  The  Prudential  has  met  the  wishes 
and  needs  of  policyholders,  and  their  appreciation  is  made 
evident  by  the  constant  increase  in.  our  business  and  by  the 
infrequency  of  serious  complaint.* 

I  have  gone  into  these  matters  at  some  length  because  of 
my  desire  to  explain  fully  and  clearly  the  practice  of  the  Com- 
pany in  all  essentials  and  in  simple  justice  to  its  millions  of 
policyholders,  who  are  representative  of  all  that  is  best  in  our 
national  traits  and  character.  We  have  always  been  ready 
and  willing  to  give  the  utmost  publicity  to  the  facts  of  our 
business  and  we  have  even  gone  so  far,  at  the  request  of  the 
United  States  Government,  as  to  exhibit  the  essential  facts 
and  features  of  Industrial  insurance  at  international  exposi- 
tions, at  Paris  in  1900  and  at  St.  Louis  in  1904.  The  first- 
named  exhibit  received  the  high  honor  and  recognition  of  a 
gold  medal,  while  to  the  last  the  international  jury  awarded 
the  "grand  prize,"  the  highest  honor  ever  conferred  upon  an 
insurance  company  in  this  or  any  other  country.  In  our 
exhibits  we  set  forth  for  the  information  of  all  who  might  be 
interested  every  essential  of  the  business,  concluding  with 
data  illustrating  the  intimate  connection  between  Industrial 

*  In  very  recent  years  the  Company  has  made  several  other  changes  of  far-reaching  importance. 
In  the  Industrial  branch,  beginning  with  the  Industrial  policies  bearing  the  date  of  January  7,  1907, 
and  thereafter,  no  further  premiums  are  required  after  the  insured  has  attained  the  age  of  seventy-five. 
The  benefits  or  amounts  of  insurance  at  all  the  younger  ages  were  substantially  increased,  and  at  certain 
ages  they  were  doubled.  The  Industrial  rates  under  these  provisions  are,  however,  non-participating. 
On  July  1,  1909,  the  table  of  benefits  was  again  increased  and  made  to  apply  to  all  policies  issued  since 
January  1,  1907,  and  in  force  July  i,  1909. 

114. 


The  Practice  of  Industrial  Insurance 

insurance  and  the  general  public  welfare.  We  even  went 
further  than  this,  and  at  the  close  of  the  St.  Louis  Exposi- 
tion, upon  request,  we  presented  a  copy  of  the  exhibit, 
consisting  of  178  charts  and  diagrams,  to  Harvard  University, 
where  it  has  been  placed  in  the  Social  Museum  and  is  now 
readily  accessible  to  their  men  of  science  and  to  students  of 
social  facts  and  forces.  Our  Paris  exhibit  was,  upon  request, 
presented  to  the  Social  Museum  of  that  city.* 

We  have  published  an  outline  of  our  history  in  a  volume 
which  has  been  praised  as  a  contribution  of  great  value 
to  American  economic  history,  and  we  have  from  time  to 
time  given  publicity  to  many  important  facts  of  our  ex- 
perience— I  mention  this  simply  to  emphasize  our  willing- 
ness to  give  publicity  to  the  real  facts  of  the  business  and  in 
every  way  to  encourage  intelligent  study  and  research  into  the 
underlying  principles  and  methods  of  Industrial  insurance. 
Much  further  than  this  we  cannot  go,  for  we  are  simply  a  life 
insurance  company,  not  a  philanthropic  organization  to 
be  guided  by  sentiment.  We  are  a  business  concern,  in 
which  every  factor  receives  the  most  painstaking  considera- 
tion, for  the  purpose  of  producing  the  best  possible  results  to 
our  policyholders,  in  a  field  of  open  competition  with  other 
life  insurance  companies  and  with  other  methods  of  saving 
and  investment. 

After  thirty  years  of  effort  there  are  now  some  six  and  a 
half  million  policies  in  force  with  The  Prudential  in  this  and 
many  other  States.  We  limit  the  field  of  our  operations  to 
the  United  States,  believing  that  here  the  opportunities  for 
growth  and  development  are  for  the  time  sufficient,  and  better 
than  in  other  lands.f  We  have  established  for  ourselves  a 
name  which  has  become  a  household  word  in  America, 
and  with  jealous  care  we  consider  everything  that  is  likely 
to  advance  the  interests  of  our  policyholders  and  enable  us 

*  Subsequent  exhibits  of  The  Prudential  at  the  Jamestown  Tercentennial  Exposition  and  at  the 
International  Tuberculosis  Congress  were  also  honored  by  the  highest  possible  awards. 

t  In  response  to  an  increasing  demand,  largely  from  Canadian  policyholders  in  the  United 
States,  The  Prudential  in  1909  entered  the  Dominion  of  Canada,  opening  offices  in  all  of  the  large  cities. 

«5 


Life  Insurance  and  Other  Subjects 

further  to  extend  the  principles  of  life  insurance  to  the 
masses,  until  in  time  practically  every  American  household 
shall  be  under  the  protection  of  an  Industrial  or  Ordinary 
life  insurance  policy.  We  firmly  believe  that  the  true  inter- 
ests of  the  plain  people  are  better  advanced  by  sound  life 
insurance  than  by  any  other  method  of  saving  or  invest- 
ment, and  we  are  confident  that  history  will  sustain  our 
position  and  do  justice  to  the  cause  and  the  mission  of 
Industrial  insurance. 

In  conclusion,  I  would  say  that  I  welcome  this  or  any 
other  impartial  legislative  inquiry  into  the  important  subject 
of  life  insurance  and  the  administration  of  life  insurance 
companies,  including  The  Prudential.  We  readily  complied 
with  every  request  of  the  New  York  State  legislative  com- 
mittee in  1905,  for  data  or  verbal  testimony,  and  we  have 
done  likewise  in  the  case  of  the  present  investigation  (1906) . 
There  is  nothing  whatever  by  way  of  testimony  or  data 
in  the  possession  of  the  Company's  officers  or  contained  in 
our  archives  that  you  may  not  call  for  and  that  we  shall  not 
be  pleased  to  furnish.  We  invite  the  most  complete  and 
exhaustive  investigation,  not  only  in  justice  to  ourselves, 
but  equally  in  justice  to  our  policyholders.  For  thirty 
years  we  have  managed  the  Company  with  but  a  single 
thought,  and  that  has  been  to  make  The  Prudential  not  only 
one  of  the  greatest,  but  also  one  of  the  best  life  insurance  com- 
panies in  the  world.  We  have  been  successful,  and  "The  Pru- 
dential" has  become  in  America  synonymous  with  honesty 
and  strength.  We  cannot  urge  you  too  strongly  to  make 
your  investigation  as  exhaustive  and  complete  as  possible,  so 
that  public  confidence  in  these  useful  institutions,  which  is 
now  somewhat  disturbed,  may  be  fully  restored.  While  we 
cordially  welcome  any  impartial  inquiry  into  our  affairs,  we 
have  opposed,  and  we  shall  continue  to  oppose,  the  unworthy 
efforts  of  so-called  reformers  to  cast  discredit  upon  life  in- 
surance management  and  methods  in  this  State.     We  do  not 

116 


The  Practice  of  Industrial   Insurance 

propose  to  allow  men  actuated  by  selfish  and  unworthy  mo- 
tives wilfully  and  recklessly  to  destroy,  or  seriously  to  injure, 
a  great  and  beneficent  institution,  which  it  has  taken  us  thirty 
years  to  build  up.  But,  for  the  legitimate  object  of  any  im- 
partial, comprehensive,  and  qualified  inquiry,  we  stand  ready 
to  meet  any  demands  which  you  may  make,  furnish  any  facts 
which  you  may  require,  submit  any  record  which  you  may 
wish  to  inspect,  confident  that  after  you  have  completed  your 
work  your  views  will  coincide  with  those  of  our  policyholders, 
that  The  Prudential  has,  from  the  outset  to  the  present  time, 
been  managed  with  rare  skill,  with  absolute  integrity,  and 
for  the  best  interests  of  its  millions  of  policyholders. 


117 


C  HA  PTE  R       V 


A    METHOD    OF     PROVIDING 

WITH    CERTAINTY 

FOR   DEPENDENT  OLD  AGE 


PUBLISHED    IN 
THE    AMERICAN    UNDERWRITER 

1908 


A  METHOD 

OF   PROVIDING  WITH   CERTAINTY 

FOR   DEPENDENT  OLD  AGE 

'he  problem  of  dependent  old  age  has  for 
many  years  attracted  the  earnest  attention 
of  statesmen,  economists,  and  others  seri- 
iously  interested  in  questions  of  social  re- 
!  form.  Sanitary  and  medical  science  combine 
to  lengthen  human  life  and  to  enlarge  the 
[proportion  of  those  who  live  beyond  the 
age  of  sixty,  but  the  problem  of  self-support  in  old  age  is 
correspondingly  increased  by  such  a  prolonging  of  human 
existence,  and  the  economic  results  may  become  very  serious 
during  long  periods  of  commercial  depression  and  industrial 
distress.  The  problem  is  naturally  more  acute  in  countries 
which  suffer  from  the  burdens  of  over-population  and  from 
the  cost  of  former  wars  and  heavy  present  military  expendi- 
tures, combined  with  natural  economic  disadvantages  and 
artificial  trade  restrictions.  As  a  proposed  solution  of  the 
problem  of  poverty  and  dependence  in  old  age,  so-called 
state  pension  schemes  have  of  recent  years  been  introduced 
in  Germany,  Austria,  and  a  number  of  other  countries. 
The  most  important  movements  in  this  direction  are  the 
universal  old-age  pension  system  of  New  Zealand  and  the 
non-contributory,  but  qualified,  pension  plan  recently  intro- 
duced in  England. 

While  proposals  have  been  made  to  introduce  a  system 
of  non-contributory  state  pensions  in  old  age  in  Massa- 
chusetts and  some  other  States,  our  satisfactory  economic 
condition  precludes  the  serious  consideration  of  such  propo- 
sitions for  many  years  to  come.  It  is  advisable,  however, 
to  point  out  the  serious  economic  fallacy  which  underlies 
every   proposition   for  a   non-contributory  old-age   pension 

121 


Life  Insurance  and  Other  Subjects 

system,  for,  while  the  political  expediency  of  such  a  scheme 
may  perhaps  be  defended,  its  economic  justification  is  en- 
tirely out  of  the  question.  What  those  in  favor  of  such  a 
system  are  pleased  to  call  a  "pension"  is,  in  fact  and  in  truth, 
only  poor  relief  disguised  in  its  most  insidious  form,  because 
most  likely  to  deceive  even  those  whose  sturdy  sense  of  per- 
sonal independence  would  otherwise  revolt  against  the  accept- 
ance of  a  clear  gift  of  public  funds  raised  chiefly  by  the  taxa- 
tion of  corporations  and  the  well-to-do.  To  admit,  how- 
ever, that  state  aid  or  support  in  old  age  for  the  large 
majority  of  wage-earners  and  others  of  limited  means  is  in 
fact  a  pressing  necessity  is  to  concede  that  the  social  and 
economic  development  of  the  nation  has  been  in  the  wrong 
direction,  that  the  education  in  thrift  has  been  defective,  and 
that  the  virtues  of  intelligent  self-denial  and  self-sacrifice 
have  been  replaced  by  considerations  of  selfish  indulgence 
and  indifference  to  the  welfare  of  others.  Even  a  casual 
consideration  of  the  facts  of  our  social  progress,  as  made 
evident  by  the  prevailing  rate  of  wages,  hours  of  labor,  im- 
proved sanitary  conditions,  home  ownership,  savings  accu- 
mulations, and  insurance,  plainly  contradicts  the  occasional 
assertion  that  there  is  any  real  necessity  for  state  aid  in  the 
form  of  old-age  pensions  for  the  support  of  widows  and 
orphans  on  the  one  hand  and  of  the  aged,  incapacitated 
and  infirm  on  the  other.* 

Universal  poor  relief  in  old  age,  disguised  as  a  state  pen- 
sion, is  certain  to  undermine  the  moral  fiber  and  in  particular 
the  thrift  function  of  the  entire  nation,  and  is  bound  to  pro- 
duce in  course  of  time  the  most  disastrous  results.  The 
American  aim  and  ideal  is  for  the  highest  possible  degree 
of  economic  independence,  and  such  independence  through- 
out life,  particularly  in  old  age,  can  only  be  gained  by  rational 
education  in  family  expenditures,  savings,  and  insurance, 
and  by   a  decidedly  higher   degree  of  industrial  efficiency 

*  See  Old  Age  Pensions  by  the  Rev.  Edward  Everett  Hale,  Boston,  n.  d.  (1907?). 

122 


A  Method  of  Providing  for  Old  Age 

of  the  workers  of  the  nation.  The  only  permanent  solution 
of  the  problem  of  poverty  is  through  the  development  of  the 
virtues  of  self-reliance,  forethought,  and  thrift,  and  no  social 
institution  offers  more  substantial  aid  in  this  effort  than  life 
insurance,  in  any  one  of  its  many  and  varied  forms,  success- 
fully and  practically  adapted  to  the  needs  of  the  people. 

Notwithstanding  the  progress  which  life  insurance  has 
made,  there  remain  vast  unrealized  possibilities  for  effect- 
ing, through  the  life  insurance  principle,  a  permanent  and 
general  solution  of  the  problem  of  dependent  old  age,  and 
the  most  important  step  in  this  direction  is  the  development 
of  the  monthly  income  policy,  to  which  I  wish  to  draw  atten- 
tion in  some  detail,  to  emphasize  its  social  and  economic  value 
as  a  practical  and  most  desirable  solution  of  the  problem  of 
needless  poverty. 

The  economic  importance  of  life  insurance  as  a  provi- 
dent institution  is  recognized  by  all  who  have  given  the 
subject  intelligent  consideration.  Life  insurance,  it  is 
hardly  necessary  to  point  out,  has  immeasurably  aided  in  the 
moral  and  material  progress  of  the  nation,  and  during 
1907  $204,453,191  *  was  disbursed  by  legal  reserve  com- 
panies in  the  form  of  claim  payments,  matured  endow- 
ments and  annuities.  In  addition,  large  sums  were  dis- 
bursed by  fraternal  benefit  and  mutual  aid  societies.  Only 
the  beginning,  however,  has  been  made,  and  the  greatest 
development  of  life  insurance  as  a  universal  provident  in- 
stitution is  for  the  future,  when  a  large  proportion  of  the 
benefits  as  they  become  due  will  be  paid  out  in  monthly  instal- 
ments. By  this  plan  provision  can  be  made  with  absolute 
certainty  to  secure  the  objects  of  insurance  protection.  At 
present,  unfortunately,  it  is  too  often  the  case  that  large  sums 
paid  out  at  death  to  beneficiaries  under  life  insurance  policies 
are  in  part  or  in  their  entirety  wasted  or  lost  because  of  seri- 
ous mistakes  in  the  management  of  the  invested  funds.     It 

*  Insurance  Year  Book  (Spectator  Company,  N.  Y.),  1908,  p.  767. 

123 


Life  Insurance  and  Other  Subjects 

is,  unfortunately,  a  fact  of  everyday  experience  that  the 
numerous  and  bewildering  schemes  and  plans  by  which  the 
inexperienced  or  ignorant  are  induced  to  invest  their  savings 
in  speculative  or  other  ill-advised  enterprises  continue  to 
flourish  to  the  great  injury  of  the  public.  The  monthly 
income  policy  safeguards  against  the  loss  of  the  principal 
and  provides  with  certainty  an  income,  for  a  period  of  at 
least  twenty  years,  which  cannot  be  encumbered,  depre- 
ciated, or  wasted  in  speculative  or  otherwise  undesirable 
investments. 

The  monthly  income  policy  emphasizes  what  it  is  of  the 
utmost  importance  for  the  insured  to  realize,  and  that 
is  the  specific  value  of  the  insurance  protection  provided 
for  surviving  members  of  the  family  or  for  self-protection 
in  old  age.  Such  a  policy  in  specific  terms  leaves  no 
doubt,  nor  is  there  any  chance  of  error  in  over-estimating 
the  value  of  the  benefits  ultimately  to  be  derived  from 
the  investment.  The  amounts  payable  every  month  are 
specifically  stated  in  the  policy  and  are  fully  and  clearly 
understood  by  the  insured.  A  large  majority  of  those 
whose  incomes  are  on  a  weekly  or  monthly  basis  have  but 
a  very  limited  conception  of  the  actual  income-producing 
value  of  even  comparatively  large  amounts.  The  incomes 
derived  from  such  investments  are  often  precarious,  fluctu- 
ating in  amount,  and  under  given  circumstances  they  may 
be  reduced  to  a  minimum  or  be  entirely  lost.  No  such 
disaster  can  overtake  the  investments  in  a  monthly  income 
policy,  which  combines  absolute  certainty  with  the  specific 
guarantee  of  a  definite  sum  payable  to  the  beneficiary 
on  the  first  of  every  month.  To  the  poor,  the  prosperous, 
and  the  well-to-do  alike,  the  monthly  income  policy  fur- 
nishes an  ideal  form  of  family  protection,  or  self-support 
in  old  age,  superior  to  any  other  present  method  of  sav- 
ings, investment,  or  insurance.  For  it  requires  no  extended 
argument  to  prove  that  a  definite  understanding,  not  only 

124. 


A  Method  of  Providing  for  Old  Age 

of  the  policy  terms,  but  of  the  ultimate  results  of  life  insur- 
ance protection,  is  of  the  utmost  importance  to  the  bene- 
ficiaries under  such  policies. 

A  minimum  of  subsistence  in  conformity  to  the  American 
standard  of  life  requires  at  least  an  annual  income  of  $360, 
which  it  is  practically  impossible  to  provide  by  savings  alone 
in  the  large  majority  of  cases,  but  which  can  be  provided 
through  life  insurance  by  a  reasonable  exercise  of  frugality, 
self-sacrifice  and  rational  economy.  One-third  of  this  amount 
can  easily  be  provided  out  of  so  small  an  income  as  $10  a 
week,  or  $520  per  annum,  and,  of  course,  the  lower  the  age 
and  the  larger  the  income  the  less  difficult  the  problem  of 
how  to  provide  adequately  for  dependent  survivors  or  for 
self-support  in  old  age. 

The  proceeds  of  a  thousand-dollar  policy  at  a  minimum 
expenditure  of  £360  per  annum  are  used  up  in  three  years  for 
necessary  family  needs.  This  fact  is  rarely,  however,  brought 
clearly  home  to  the  uninsured  or  to  the  under-insured,  and 
many  are  content  with  one  or  two  thousand  dollars  of  in- 
surance protection  when  a  better  realization  of  the  produc- 
tive value  of  these  amounts  would  induce  more  economical 
habits  and  lead  to  a  corresponding  increase  in  the  premium 
payments  for  life  insurance  protection.  This  truth,  which 
is  an  axiom  in  life  insurance  experience,  requires  to  be  more 
emphatically  brought  home  to  the  many  who  are  under-in- 
sured, and  they  should  be  made  to  realize  that  it  requires 
at  least  $1,756  of  insurance  protection  to  provide  a  monthly 
income  of  $10  for  a  period  of  twenty  years.  When  this  im- 
portant fact  is  more  generally  understood  the  common  error 
of  placing  too  much  reliance  upon  a  thousand-dollar  policy 
as  sufficient  protection  will  be  replaced  by  more  adequate 
amounts  of  insurance  for  the  benefit  of  surviving  members 
of  the  family  or  for  the  needs  of  self-support  in  dependent 
old  age. 

These  observations  and  conclusions  set  forth  and  define 


125 


Life  Insurance  and  Other  Subjects 

the  first  principles  which  should  govern  in  any  general  con- 
siderations of  life  insurance  for  the  purpose  of  family  and 
self-protection.  Even  to  provide  a  minimum  income  of 
|io  a  month  for  the  needs  of  dependent  survivors  for  a 
period  of  twenty  years  requires  a  not  inconsiderable  degree 
of  self-denial  and  economical  management  of  the  family 
income  on  the  part  of  those  who  live  on  small  salaries  or 
average  wages.  At  age  30  the  cost  of  a  policy  providing  $10 
a  month  for  a  period  of  twenty  years  on  the  whole  life  non- 
participating  plan  is  $33.47,  which  is  equivalent  to  5.58  per 
cent,  of  an  income  of  $600  per  annum,  and  to  only  4.65  per 
cent,  of  an  income  of  $720  per  annum.  To  emphasize  how 
very  large  is  the  group  of  those  who  receive  wages  or  salaries 
of  even  less  than  $720  per  annum,  reference  may  be  made 
to  the  Federal  civil  service,  in  which  36  per  cent,  of  the  male 
employees  receive  incomes  of  less  than  this  amount,  while 
of  male  wage-earners  generally  only  20.7  per  cent,  receive 
as  much  as  $15  a  week  or  more.  To  those  who  aim  to 
make  at  least  a  minimum  provision  for  family  needs  in  the 
event  of  death,  it  should  not  be  impossible,  with  rational 
economy,  to  provide  by  insurance  out  of  an  income  of  $600  to 
$720  per  annum  a  guaranteed  income  of  $15  a  month,  pay- 
able for  a  period  of  twenty  years.  Such  a  provision  may, 
on  first  consideration,  appear  small,  but  it  will  provide  with 
certainty  for  the  specific  needs  of  the  family,  and  its  great 
economic  value  lies  in  the  fact  that  it  is  a  definite  amount 
payable  at  definite  intervals  and  with  certainty  for  a  definite 
period  of  time,  that  it  cannot  be  wasted  or  lost,  encumbered 
or  depreciated,  but  remains  as  safe  and  secure  as  the  income 
derived  from  government  bonds. 

The  cost  of  such  insurance  protection  varies  necessarily 
with  the  age  of  the  insured  and  with  the  plan  selected  as  best 
adapted  to  personal  needs.  The  following  table  gives  speci- 
men premium  rates  of  monthly  income  policies  on  the  non- 
participating  plan,  providing  $10  a  month  for  twenty  years. 

126 


A  Method  of  Providing  for  Old  Age 

Specimen  Premium  Rates  of  Monthly  Income  Policies 
(Non-participating) 

Providing  $io  a  Month  for  Twenty  Years 


ABe 
20 

Whole  Life 
$26.24 

20-Pay't  Life 
$39.64 

20- Year  End't 
$73-28 

30-Year  End't 
$46.04 

25 

2941 

43-13 

73-90 

46.92 

30 

33-47 

47-39 

74-77 

48.31 

35 

38.76 

52.62 

76.16 

50.60 

40 

4576 

59.16 

78.46 

54-41 

45 

55-20 

67.62 

82.46 

60.76 

50 

68.11 

78.91 

89-35 

7I-05 

55 

85.91 

94-38 

100.87 

60 

110.64 

116.24 

H9-55 

At  the  age  of  20  the  cost  is  $26.24  on  the  whole  life  plan, 
$39.64  on  the  20-payment  life  plan,  and  $46.04  on  the  30- 
year  endowment  plan.  The  rates  naturally  increase  with 
increasing  age,  but,  as  emphasizing  one  very  desirable  form 
of  self-protection  in  old  age,  attention  may  be  called  to  the 
30-year  endowment  rate  at  age  30,  which,  according  to  the 
table,  is  only  $48.31,  or  less  than  $1  a  week.  Even  an  in- 
come of  but  $10  a  week,  with  reasonable  economy,  ought  to 
permit  of  a  saving  of  less  than  one-tenth  to  provide  a  definite 
income  to  the  insured  after  the  age  of  60,  when  the  active 
working  period  of  life  has  practically  come  to  an  end.  By 
this  payment  of  less  than  $1  a  week  it  lies  within  the  power 
of  practically  every  American  to  provide  at  least  the  minimum 
of  subsistence  with  certainty  for  his  own  future,  or  a  sum 
equal  to  the  probable  maximum  which  any  government  pen- 
sion scheme  could  ever  expect  to  provide. 

In  all  of  the  propositions  which  have  been  made  for  govern- 
ment pensions  few  have  gone  further  than  to  suggest  a  maxi- 
mum amount  of  $2.50  a  week.  Considering,  however,  that  a 
very  large  proportion  of  wage-earners  and  those  in  receipt  of 

127 


Life  Insurance  and  Other  Subjects 

salaries  or  other  incomes  receive  more  than  $520  per  annum, 
and  that  in  fact  a  very  large  proportion  outside  of  the  wage- 
earning  group  receive  over  $1,200  per  annum,  it  requires  no 
extended  calculations  to  prove  that  the  cost  of  adequate  pro- 
vision for  old  age  through  life  insurance  on  the  monthly  in- 
come plan  is  entirely  within  the  means  of  all  who  really  wish 
to  maintain  their  self-respect  by  providing  for  self-support 
at  their  own  cost  and  out  of  their  own  means.  At  age  30  the 
30-year  endowment  premium  of  $48.31  is  but  4.03  per  cent, 
of  an  annual  income  of  $1,200,  which,  without  difficulty,  in 
the  case  of  normal  families  at  least,  could  be  economically 
managed  to  allow  of  a  provision  for  an  income  of  $25  a  month 
at  a  cost  of  $120.77,  or  10.06  per  cent,  of  the  income.  In 
the  case  of  an  income  of  $2,500  the  income  to  be  provided 
should  not  be  less  than  $25  a  month,  and  this  could  easily 
be  increased  to  $50  a  month  by  economical  and  prudent 
management  of  the  family  resources.  These  are  the  possi- 
bilities of  self-protection  in  old  age  and  self-support  for 
dependent  survivors  of  the  family  which  the  monthly  income 
policy  offers,  and  which,  no  doubt,  will  enormously  enhance 
the  social  and  individual  value  of  insurance  protection  and 
make,  within  a  measurable  period  of  time,  legal-reserve 
life  insurance  on  the  non-participating  plan,  in  truth  and  in 
fact,  a  universal  provident  institution  throughout  the  land. 


128 


Chapter   VI 


THE     PROBLEM    OF    THE 
UNINSURED 


PUBLISHED    IN 

THE    NEW    YORK    COMMERCIAL 

1908 


THE  PROBLEM  OF  THE  UNINSURED 

ife  insurance  in  the  United  States  is  to- 
(day  an  economic  necessity,  and  the  peri- 
odical premium  payments  have  become 
fixed  items  of  family  expenditure.  Life 
insurance  is  no  longer  a  novelty  or  a 
'class  institution,  but  a  universal  method  of 
^providing  with  certainty  for  the  needs  of 
others  and  for  self-support  in  old  age.  While  very  commend- 
able progress  has  been  made  in  the  direction  of  popularizing 
legal-reserve  life  insurance  with  all  of  the  widely  different 
elements  of  the  population,  much  remains  to  be  done  to 
make  life  insurance  in  fact  a  universal  provident  institution. 
On  December  31,  1907,  there  were  approximately  6,100,- 
000  Ordinary  policies  in  force  in  the  United  States,  in- 
suring over  eleven  and  a  half  billion  dollars  of  legal-reserve 
insurance  protection.  On  the  same  date  the  number  of 
Industrial  policies  exceeded  18,700,000,  insuring  two  and 
a  half  billion  dollars  of  legal-reserve  Industrial  insurance 
protection.*  Panics,  depressions,  and  hard  times  have  had 
no  perceptible  unfavorable  effect  upon  the  recent  growth  of 
the  business,  for  life  insurance  premium  payments  are,  in 
the  majority  of  instances,  small  periodical  deductions  from 
the  luxuries  and  not  from  the  real  necessities  of  life.  By 
rational  economy  it  is  easily  within  the  means  of  all  above 
the  pauper  class  to  secure  the  home  and  the  family,  to 
maintain  self-respect,  and  to  provide  for  old  age  in  a  modest 
way  through  legal-reserve  life  insurance  with  sound  and 
solvent  companies  in  every  section  of  the  country  from 
Alaska  to  the  Everglades. 

The  number  of  policies  in  force  is,  of  necessity,  much 
larger  than  the  number  of  persons  insured.  Quite  a  con- 
siderable   proportion    of   life    insurance    policyholders    are 

*  By  December  31,  1908,  the  number  of  Industrial  policies  in  force  had  increased  to  over  19,687,- 
000,  and  the  amount  of  Industrial  insurance  to  nearly  $2,669,000,000. 

!33 


Life  Insurance  and  Other  Subjects 

insured  under  more  than  one  policy,  and  with  more  than  one 
company,  but  it  would  seem  safe  and  conservative  to  assume 
that  the  6,100,000  existing  Ordinary  policies  (December  31, 
1907)  represent  approximately  4,500,000  insured  persons  of 
the  adult  American  population.  It  is  equally  safe  to  assume 
that  the  18,700,000  existing  Industrial  policies  (December  31, 
1907)  represent  approximately  12,500,000  insured  persons 
holding  Industrial  policies,  but  quite  a  large  number  of 
these  policyholders  are  insured  on  both  the  Ordinary  and  In- 
dustrial plans.  To  arrive  at  an  approximate  estimate  of  the 
number  of  persons  insured  with  legal-reserve  life  insurance 
companies,  it  is  therefore  necessary  to  make  a  deduction  on 
this  account,  and  500,000  will  probably  approximately  repre- 
sent the  number  who  hold  both  Industrial  and  Ordinary 
policies. 

After  making  these  deductions  there  remains  a  net 
total  of  about  16,500,000  persons  insured  in  legal-reserve 
life  insurance  companies  in  the  United  States  at  the 
present  time,  out  of  an  aggregate  population  of  over 
86,000,000,  according  to  the  official  estimate  for  1907.  This 
estimate  of  the  insured  population  is,  of  course,  exclusive  of 
the  large  number  of  persons  who  hold  membership  certifi- 
cates in  fraternal,  assessment  and  other  so-called  beneficial 
insurance  associations. 

The  aggregates  of  American  life  insurance  are  truly  im- 
posing, but  they  obscure  the  more  serious  problem,  and  that 
is  the  mass  of  the  uninsured.  After  deducting  the  16,500,000 
of  insured  population  from  the  total  population,  there  re- 
mains the  enormous  aggregate  of  nearly  70,000,000  who  are 
at  present  not  insured  with  legal-reserve  life  insurance 
companies.  Since  the  legal-reserve  plan  is  the  only  method 
of  life  insurance  which  has  generations  of  human  experience 
to  sustain  it,  and  which  is  based  upon  the  scientific  principles 
of  the  law  of  mortality  and  sound  theories  of  finance,  all 
other  forms  of  life  insurance  are  more  or  less  in  the  nature 


134 


The  Problem  of  the  Uninsured 

of  speculation  and  are  otherwise  unsatisfactory  attempts  to 
substitute  unsound  for  sound  and  solvent  methods  of  in- 
surance. 

Progress,  however,  is  being  made  from  year  to  year,  and 
the  ratio  of  sound  life  insurance  to  population  is  continually 
increasing.  In  1898,  or  ten  years  ago,  the  ratio  of  Ordinary 
policies  was  3.3  to  every  100  inhabitants,  which  by  the  end 
of  1907  had  risen  to  7.1.  There  had  been  in  the  meantime, 
an  actual  increase  of  3,650,000  in  the  number  of  Ordinary 
policies  in  force,  equivalent  to  151  per  cent.  While  the  normal 
annual  rate  of  progress  is  not  as  rapid  as  the  best  interests 
of  the  population  at  large  seem  to  demand,  it  is  con- 
servative and  in  conformity  with  the  best  practices  of  the 
business.  But  for  the  disturbed  conditions  affecting  life 
insurance  progress  during  the  past  few  years,  the  actual  rate 
of  increase  during  the  last  decade  would,  however,  have  been 
much  greater.  The  normal  yearly  addition  to  the  number 
of  Ordinary  policies  in  force  in  the  United  States  is  about 
500,000,  but  during  the  last  three  years  the  average  annual 
increase  has  been  only  about  200,000  policies.  By  degrees, 
however,  the  ground  lost  is  being  recovered,  for  public  con- 
fidence in  life  insurance,  as  such,  was  never  seriously 
disturbed. 

I  cannot  better  emphasize  this  statement  than  by  directing 
attention  to  the  progress  made  in  other  fields  of  financial 
and  commercial  effort  during  the  same  period.  While 
during  the  decade  ended  with  1907  the  increase  in  the 
number  of  Ordinary  policies  was,  as  stated,  151  per  cent., 
the  increase  in  the  amount  of  money  in  circulation  in  the 
United  States  was  only  50  per  cent.,  in  bank  clearings  139  per 
cent.,  in  the  amount  of  loans  and  discounts  by  national  banks 
1 1  per  cent.,  in  the  amount  on  deposit  in  savings  banks  72  per 
cent.,  in  the  amount  on  deposit  in  State  banks  61  per  cent.,  in 
the  Government  revenue  64  per  cent.,  in  the  value  of  imports 
133  per  cent.,  and,  finally,  in  the  value  of  exports  53  per  cent. 

135 


Life  Insurance  and  Other  Subjects 

This  statistical  evidence  is  conclusive  proof  that  the  prog- 
ress of  life  insurance  during  the  last  decade  has  been  at  a 
more  rapid  rate  than  the  progress  of  the  nation  in  other 
important  directions,  and  there  is  every  reason  to  believe 
that  the  development  of  Ordinary  legal-reserve  life  insur- 
ance in  this  country,  in  the  immediate  future,  will  far  exceed 
the  progress  of  the  business  during  the  recent  past. 

The  advance  of  Industrial  insurance  in  the  United  States 
during  the  same  period  has  been  actually  much  greater,  as 
measured  by  mere  numbers,  but  relatively  less  in  propor- 
tion to  population,  on  account  of  the  very  much  larger  num- 
ber of  policies  already  in  existence.  The  ratio  of  Industrial 
policies  to  population  has  increased,  from  12  to  every  100  in- 
habitants in  1898  to  22  in  1907.  The  actual  increase  in  the 
number  of  Industrial  policies  during  the  decade  has  been 
nearly  10,000,000,  while  the  relative  increase  has  been  112  per 
cent.  To  fully  grasp  the  significance  of  this  statement,  the 
analysis,  however,  must  be  extended  to  include  the  local  devel- 
opment of  the  business  in  the  principal  manufacturing  States. 
In  New  Jersey,  for  illustration,  where  the  business  had  its 
beginning  only  as  far  back  as  1875,  the  ratio  of  Industrial 
policies  to  population  is  81  to  every  100,  against  22  for  the 
country  as  a  whole.  For  New  York  the  corresponding  ratio 
is  49,  and  for  Ohio  26.  The  results  which  have  been  attained 
in  New  Jersey  measure  the  possibilities  of  the  growth  and 
development  of  the  business  in  other  industrial  States,  for 
to-day  active  efforts  are  being  made  to  develop  Industrial 
insurance  in  practically  every  city  of  the  United  States,  from 
Maine  to  California.  Considering  that  more  than  one- 
third  of  the  inhabitants  of  the  country  live  in  cities,  the  out- 
look for  the  development  of  Industrial  insurance  is,  indeed, 
most  encouraging. 

To  emphasize  somewhat  more  in  detail  the  possibili- 
ties of  the  future  of  Ordinary  legal-reserve  life  insurance 
in   the   United    States,   attention   may   be    directed    to    the 

136 


The  Problem  of  the  Uninsured 

wonderful  progress  which  has  been  made  by  life  insurance 
in  New  Zealand,  where  the  ratio  of  Ordinary  policies  to  popu- 
lation is  13  to  every  100  inhabitants,  against  only  7  for  the 
United  States.  There  are  no  material  differences  in  economic 
conditions  to  account  for  this  much  more  rapid  degree  of 
progress  in  the  colony  of  New  Zealand,  but  the  results  clearly 
indicate  the  possibilities  of  the  development  of  Ordinary 
life  insurance  in  the  United  States.  If  at  the  present  time 
(1907)  our  proportion  of  Ordinary  policies  to  population 
were  the  same  as  the  existing  proportion  of  this  business  in 
New  Zealand,  the  actual  number  of  Ordinary  policies  in  the 
United  States  would  be  nearly  12,000,000,  instead  of  only  a 
trifle  over  6,000,000. 

One  probable  reason  why  there  has  not  been  as  much 
progress  in  American  Ordinary  life  insurance  in  the  past  as 
the  natural  resources,  opportunities,  and  material  well-being 
of  the  United  States  would  warrant  is  that  until  within  a 
comparatively  short  period  of  years  no  serious  effort  had 
been  made  to  reach  the  many  millions  of  our  industrial  or 
wage-earning  population.  Through  the  persistent  efforts  of 
Industrial  agents,  however,  the  mass  of  the  people  are  grad- 
ually being  educated  in  the  principles  and  practice  of  sound 
life  insurance.  To  an  ever-increasing  extent,  Ordinary  poli- 
cies are  being  written  by  Industrial  agents  among  an  element 
who  in  the  past  were  practically  let  alone  by  exclusively 
Ordinary  companies  and  forced  to  rely  upon  the  less  satis- 
factory and  less  secure  methods  of  fraternal,  or  assessment, 
insurance.  Under  conditions  of  peace  and  plenty  this 
factor  will  have  a  most  important  and  increasing  effect  in 
enlarging  the  field  of  legal-reserve  Ordinary  life  insurance, 
chiefly  among  an  element  not  reached  by  the  agents  or 
solicitors  of  exclusively  Ordinary  companies.* 

Another  important  factor  which  will  go  far  toward 
increasing    the    opportunities    for    developing    legal-reserve 

*  On  December  31,  1908,  there  were  1,295,942  Ordinary  policies  in  force  with  the  Industrial  life  in- 
surance companies  of  the  United  States,  representing  $1,317,887,524  of  insurance. 

137 


Life  Insurance  and  Other  Subjects 

Ordinary  life  insurance  is  the  increasing  accessibility  of  the 
farming  regions  of  the  country.  Within  the  last  decade  an 
immense  interurban  electric  railway  system  has  been  devel- 
oped which  has  brought  a  larger  area  within  easy  reach 
of  the  solicitor  than  was  accessible  in  the  past.  Good  roads 
are  being  extended  in  every  direction,  and  the  automobile, 
among  other  methods  of  conveyance,  is  being  used  to  bring 
the  insurance  solicitor  to  the  most  remote  farm  and  fire- 
side. The  rural  free  delivery  system  has  also  become  a 
substantial  aid,  while  the  large  increase  in  railway  mileage 
has  opened  up  new  farming  regions,  formerly  very  difficult 
of  convenient  and  economical  access.  All  these  factors 
combined  tend  strongly  to  promote  the  more  rapid  future  de- 
velopment of  life  insurance  business  throughout  the  country. 
But  there  is  still  another  important  factor  demanding  consid- 
eration, and  that  is  the  much  higher  prices  realized  for  farm 
products  of  all  kinds,  which  enable  the  agricultural  popula- 
tion of  the  present  day  to  make  larger  use  of  life  insurance 
protection  than  was  formerly  possible. 

As  further  emphasizing  the  possibilities  of  the  progress  of 
Industrial  insurance  in  the  future,  attention  may  be  directed 
to  the  success  which  has  been  achieved  in  England,  where, 
however,  Industrial  insurance  has  been  in  existence  for  some 
twenty  years  longer  than  in  the  United  States.  In  the  United 
Kingdom,  with  a  population  of  44,000,000,  there  are  now  in 
force  some  25,600,000  Industrial  policies,  or  58  to  every  100 
inhabitants.*  If  the  same  ratio  obtained  in  the  United  States, 
there  would  now  be  in  force  more  than  50,000,000  Industrial 
policies  instead  of  the  18,600,000  actually  in  existence.  We 
might,  therefore,  more  than  double  the  existing  amount  of 
Industrial  insurance  in  the  United  States  without  equaling 
the  attained  ratio  of  business  to  population  in  a  country 
with  social  and  economic  conditions  far  from  being  as  favor- 
able as  in  the  United  States. 

*  In  addition  there  are  in  force  some  8,000,000  policies  on  the  weekly  plan  with  collecting 
friendly  societies. 


The  Problem  of  the  Uninsured 

Finally,  it  is  necessary  to  take  into  account  the  normal 
increase  of  the  American  population,  which  is  about  1,600,- 
ooo  per  annum,  as  the  result  of  an  excess  of  births  over  deaths 
and  of  an  excess  of  immigration  over  emigration.  If  the 
American  life  insurance  companies  did  nothing  more  than 
to  take  care  of  this  normal  increase  in  the  population,  and  if 
their  actual  increase  in  business  only  kept  pace  with  the 
increase  in  population,  they  would  indeed  make  a  most 
commendable  record.  Actually  we  add  only  about  200,000 
Ordinary  policies  per  annum  under  existing  conditions,  and 
less  than  1,000,000  Industrial  policies,  so  that  we  are  not 
making  the  progress  in  business  results  which  the  increase 
in  population  would  warrant.  Under  the  economic  condi- 
tions which  normally  prevail  in  the  United  States  favoring 
the  rapid  progress  and  material  well-being  of  the  foreign- 
born,  this  element  of  the  population,  which  alone  constitutes 
a  large  field,  is  most  in  need  of  rational  insurance  education 
on  the  one  hand,  and  of  sound  insurance  protection  on  the 
other. 

Life  insurance,  as  an  economic  necessity,  represents  an 
immense  force  making  for  social  betterment,  which  cannot 
be  hindered  by  occasional  disturbances  in  business,  or  by 
financial  panics  and  industrial  depressions.  Life  insurance, 
constituting  as  it  does  one  of  the  absolute  essentials  of 
our  social  and  material  progress,  is  a  force  which  must 
continue  to  increase  with  the  progress  of  the  nation  in 
material  wealth  and  with  its  advance  in  civilization.  We  hear 
much  of  the  alleged  need  of  state  pensions  in  old  age,  and 
claims  are  made  for  the  necessity  of  state  insurance,  some 
even  going  so  far  as  to  suggest  a  compulsory  system,  such  as 
is  in  operation  in  Germany  and  Austria;  but  contemplating 
the  wonderful  results  which  private  initiative  has  achieved  in 
the  United  States  in  this  field  of  voluntary  thrift,  my  mind 
does  not  recall  a  similar  achievement  in  other  fields  of  com- 
merce, finance  or  philanthropy,  nor  can  I  conceive  of  a  social 

139 


Life  Insurance  and  Other  Subjects 

institution  more  deserving  of  public  favor  and  public  support 
than  legal-reserve  life  insurance  as  it  has  been  developed 
within  the  last  generation  in  the  United  States.  The  evi- 
dence is  overwhelming  that  the  future  of  American  life 
insurance  is  full  of  great  possibilities  and  that  the  results 
attained  in  the  past  will  be  insignificant  compared  with 
the  still  more  wonderful  achievements  of  the  time  to  come. 


140 


Chapter   VII 


LIFE    INSURANCE    AS    A    CAREER 


PUBLISHED     IN 

THE    NEW    YORK    TRIBUNE 

1903 


LIFE   INSURANCEAS   A   CAREER 

ife  insurance,  in  the  words  of  DeMorgan, 
/'though  based  upon  self-interest,  is  the 
most  enlightened  and  benevolent  form 
,  which  the  projects  of  self-interest  ever 
took.  Stripped  of  its  technical  terms  and 
its  commercial  associations,  it  may  be  pre- 
sented in  a  point  of  view  which  will  give 
it  strong  moral  claims  to  notice."  In  its  origin  a  British  in- 
stitution, life  insurance  has  developed  most  rapidly  and  on 
the  largest  scale  in  the  United  States.  Practically  unknown 
in  this  country  a  hundred  years  ago,  and  of  insignificant 
proportions  even  fifty  years  later,  the  last  half  century  and, 
in  particular,  the  last  decade  record  what  must  be  conceded 
to  be  the  most  marvelous  business  success  of  this  or  any 
age. 

While  there  are  many  forms  of  insurance  protection, 
legal-reserve  life  insurance  alone  offers  the  absolute  assur- 
ance that  the  obligations  incurred  and  the  promises  made 
will  be  met.  Of  legal-reserve  companies  there  are  about 
eighty  in  active  operation,  with  about  four  million  Ordinary 
and  about  thirteen  and  a  half  million  Industrial  policies  in 
force.  The  accumulated  assets  of  these  companies  exceed 
$2,000,000,000,  and  the  annual  payments  to  policyholders, 
$200,000,000.  The  annual  income  is  more  than  $500,000,000, 
while  the  surplus  to  policyholders  exceeds  $300,000,000.* 

Life  insurance  has  been  defined  as  a  social  device  for 
making  accumulations  for  meeting  uncertain  loss  of  capital, 
which  is  carried  out  through  the  transfer  of  the  risks  of  many 
to  one  person,  or  to  a  group  of  persons,  in  clear  recognition 
of  the  principle  that  "the  aggregate  danger  is  less  than  the 
sum  of  individual  dangers,  for  the  reason  that  it  is  more 

*  On  December  31,  1908,  there  were  about  171  legal-reserve  companies,  with  over  six  million 
Ordinary  and  nearly  twenty  million  Industrial  policies  in  force.  The  accumulated  assets  of  these  compa- 
nies were  then  nearly  $3,400,000,000  and  the  annual  payments  to  policyholders  were  about  $336,000,000. 
The  annual  income  was  nearly  $704,000,000,  and  the  surplus  to  policyholders  a  little  more  than  $474,000,000. 

*4$ 


Life  Insurance  and  Other  Subjects 

certain,  and  that  uncertainty  of  itself  is  an  element  of 
danger."*  Primarily  devised  to  provide  for  the  support  of 
widows  and  orphans,  the  practice  has  been  developed  and 
enlarged  so  as  to  include  the  secure  investment  of  surplus 
earnings,  in  conjunction  with  the  insurance  of  a  sum  pay- 
able at  death. 

In  virtue  of  these  principles  the  system  of  legal-reserve 
life  insurance  has  been  developed  to  an  extraordinary  ex- 
tent, but,  however  widely  diffused,  it  is  safe  to  state,  with 
a  reasonably  thorough  knowledge  of  the  facts,  that  the  real 
development  of  the  business  is  of  the  future  rather  than  of  the 
present,  and  that  the  actual  progress  which  has  been  made 
during  the  last  thirty  years  will  be  in  contrast,  rather  than 
in  comparison,  with  the  far  greater  progress  and  further  ex- 
tension of  the  business  during  the  next  thirty  years. 

This,  then,  appears  on  its  face  to  be  a  reasonable  proposi- 
tion, that  for  a  business  career  many  young  men  would  choose 
well  and  wisely  to  attach  themselves  to  what  already  is 
one  of  the  most  important  commercial  enterprises  of  the 
age.  Subject  to  no  violent  fluctuations,  of  an  enduring 
character,  and  growing  at  a  rapid  rate,  the  administration 
and  management  of  this  business  require  an  army  of  men  of 
integrity,  exceptional  ability,  energy,  and  insight,  and  to  men 
of  this  type  life  insurance  offers  not  only  adequate  compen- 
sation, but  more  than  average  remuneration.  In  no  business, 
it  is  safe  to  say,  is  the  division  of  labor  carried  so  nearly  to 
perfection  and  at  such  little  cost  to  the  individual.  In 
life  insurance  the  greatest  possible  range  of  opportunity  is 
given  to  every  individual  worker,  whether  in  the  office  or 
outside,  and  the  gradations  of  employment  are  such  that  at 
least  a  moderate  amount  of  success  is  within  the  reach  of  all 
who  conform  to  the  simplest  principles  of  industry,  energy, 
and  integrity. 

Broadly  speaking,  there  are  two  distinct  methods  of  life 

*  William  Roscher,  Principles  of  Political  Economy,  translated  by  J.  J.  Lalor,  New  York,  1878, 
vol.  II,  p.  261. 

I4.6 


Life  Insurance  as  a  Career 

insurance  on  the  legal-reserve  plan,  namely,  Ordinary  and 
Industrial.  Of  the  two  the  latter  is  relatively  the  more  im- 
portant, in  that  it  reaches  a  very  much  larger  number  of 
people.  The  essential  difference  is  in  the  method  of  pay- 
ing the  premiums,  in  that  Industrial  premiums  are  payable 
weekly  and  collected  from  the  homes  of  the  insured,  while 
Ordinary  premium  payments  are  quarterly,  semi-annual,  or 
annual,  and  are  required  to  be  sent  to  the  office  of  the 
company.  A  further  distinction  is  that  the  average  amount 
of  insurance  is  about  $i2o[$i37  in  1908]  on  the  Industrial, 
against  about  $2,100  [$1,932  in  1908]  on  the  Ordinary  plan. 
These  two  distinct  methods  of  life  insurance,  although 
derived  from  the  same  fundamental  basis  of  mortality  and 
finance,  offer  different  opportunities  for  young  men  who 
make  a  choice  of  life  insurance  as  a  career. 

Again  speaking  broadly,  the  work  of  a  life  insurance  com- 
pany is  divided  into  office  work  and  field  work,  or  administra- 
tive and  agency  work.  By  the  latter  term,  in  Industrial 
insurance,  are  understood  the  soliciting  for  new  business  and 
the  continued  collection  of  the  weekly  premium;  in  Ordinary 
insurance,  only  the  soliciting  for  new  business  and  the  collec- 
tion of  the  first  annual  premium.  The  home  office  work  is 
practically  the  same  except  in  so  far  as  the  administration  of 
an  Industrial-Ordinary  company  is  more  intricate  and  more 
subdivided  into  different  departments,  on  account  of  the 
enormous  number  of  risks  insured.  With  an  Industrial 
company  (such  as  The  Prudential)  the  number  of  risks  is 
counted  by  the  million,  and  the  new  proposals  for  insurance 
average  from  twenty  to  thirty  thousand  weekly.  This  re- 
quires a  large  office  machinery  for  accounting,  inspection, 
tabulation,  analysis,  etc.,  and  for  this  reason  the  home  office 
of  an  Industrial  company  may  be  said  to  offer  a  wider  field 
for  the  development  of  individual  talent. 

The  field  work  of  Ordinary  and  Industrial  agents  has 
much  in  common,  and  yet  there  is  a  radical  difference.     Both 

H7 


Life  Insurance  and  Other  Subjects 

classes  of  agents  have  to  secure  business  by  personal  solici- 
tation, with  this  difference,  that  the  former  reaches  the  more 
prosperous  element  of  the  population,  while  the  latter  is  ex- 
pected to  canvass  largely  among  the  families  of  wage-earners 
or  people  of  small  means.  This  work  is  thoroughly  super- 
vised by  district  superintendents  and  assistant  superintend- 
ents, who  are  reponsible  for  the  most  effective  development 
of  their  respective  districts.  While  the  average  amount  of 
insurance  under  Industrial  policies  is  about  one-seventeenth 
of  that  of  the  Ordinary,  the  opportunity  for  insuring  the  entire 
family  increases  correspondingly  the  opportunities  for  mak- 
ing an  agency  a  position  of  material  importance.  The  usual 
method  is  to  transfer  to  a  new  agent  a  certain  amount  of  col- 
lectible premiums,  and  through  this  introduction  to  the  busi- 
ness he  becomes  familiar  with  the  territory  and  soon  adapts 
himself  to  the  local  conditions.  Promotion  is  rapid  from 
the  position  of  an  agent  to  that  of  an  assistant  superintendent, 
with  a  guaranteed  salary,  and  to  the  still  higher  position  of 
district  superintendent.  Very  little  technical  education  is 
required  for  Industrial  field  work,  and  the  chief  elements  of 
success  are  energy,  tact  and  integrity. 

Additional  attractions  for  employment  as  life  insurance 
field  workers  are  the  opportunity  for  outdoor  life,  contact  with 
different  elements  of  the  population,  and,  perhaps  most  of 
all,  the  certainty  of  finding  remunerative  employment  in  any 
part  of  the  country — in  fact,  in  almost  any  part  of  the  civilized 
world.  A  good  solicitor  for  life  insurance  can  secure  a  pay- 
ing position  anywhere,  and  he  will  be  readily  employed  if  he 
can  furnish  satisfactory  references  and  proper  credentials. 

Ordinary  solicitors  require  a  fairly  thorough  technical 
instruction  in  the  general  principles  and  practice  of  insur- 
ance, since  the  large  variety  of  plans  of  insurance  offered  to 
the  public  by  different  companies  makes  competition  very 
keen,  and  success  often  depends  upon  a  perfect  knowledge 
of  the  intricacies  of  the  business.     The  more  thoroughly  the 

148 


Life  Insurance  as  a  Career 

Ordinary  solicitor  realizes  the  necessity  for  energetic  personal 
canvassing  the  more  likely  it  is  that  success  will  be  attained. 
It  has  been  found  by  experience  that  life  insurance  agency 
work  cannot  be  advantageously  carried  on  in  connection 
with  other  employment.  An  agent  should  understand  the 
essential  principles  of  life  insurance  and  have  a  thorough 
knowledge  of  every  plan  of  insurance  sold  by  his  company 
and  its  chief  competitors.  The  men  who  succeed  best  are 
those  who  limit  themselves  in  their  arguments  to  a  straight- 
forward statement  of  the  facts  in  the  case — in  other  words, 
to  the  cost  of  insurance  and  the  results  to  be  realized  by  the 
insured.  Men  who  intelligently  adapt  themselves  to  the 
exigencies  of  the  occupation  are  practically  certain  to  meet 
with  modest  success,  and  reasonably  certain  to  meet  with 
more  than  average  success,  such  as  would  follow  correspond- 
ing efforts  in  other  directions.  Every  agent  should  also  make 
himself  familiar  with  the  history  of  his  company  and  with  its 
business  principles  and  office  practice,  as  well  as  with  the 
general  history  of  life  insurance  and  the  readily  compre- 
hended arguments  in  favor  of  this  form  of  family  protection. 
The  general  status  of  the  life  insurance  solicitor  has  very 
materially  improved  within  recent  years,  largely  because  of 
the  superior  class  of  men  who  are  now  attracted  to  this  call- 
ing. The  arguments  in  favor  of  insurance  have  become  more 
intelligent,  the  literature  distributed  for  the  information  of 
the  public  has  been  freed  from  technicalities  and  misleading 
controversial  arguments,  while  at  the  same  time  the  public  at 
large  has  become  more  thoroughly  familiar  with  the  value 
and  advantages  of  life  insurance  protection.  Other  things 
equal,  it  is  safe  to  say  that  the  best  success  is  attained  in  com- 
munities in  which  a  large  number  of  companies  are  repre- 
sented and  are  actively  engaged  in  the  extension  of  their  busi- 
ness. To  agents,  Industrial  as  well  as  Ordinary,  who  will 
adapt  themselves  to  the  normal  conditions  under  which  suc- 
cess is  granted,  life  insurance  offers  to-day  exceptional  oppor- 

14.9 


Life  Insurance  and  Other  Subjects 

tunities  for  remunerative  employment  and  for  rapid  pro- 
motion to  higher  grades  of  field  management,  as  well  as  to 
the  administrative  branch  of  the  business — probably  better 
than  banks,  railways,  and  other  financial  and  commercial 
enterprises. 

The  general  management  of  a  life  insurance  company  is 
under  a  board  of  directors  or  trustees,  according  to  the  charac- 
ter of  the  institution — whether  proprietary  or  mutual.  The 
direct  administration  is  in  charge  of  officers  and  officials,  to 
each  of  whom  specific  duties  are  assigned.  The  president's 
duties  are  to  maintain  a  general  supervision  over  and  direction 
of  the  business  of  the  company,  both  in  the  office  and  in  the 
field,  but  in  particular  he  must  give  his  attention  to  the  care 
and  investment  of  the  company's  funds  and  to  other  financial 
transactions — a  great  and  far-reaching  responsibility. 

The  vast  office  machinery  of  a  large  company  is  exceed- 
ingly complex,  and  not  readily  separated  into  its  integral 
parts;  but  there  are  usually  three  groups  of  officers — the 
first,  or  executive,  being  in  general  charge  of  the  office  and 
field  administration;  the  second  representing  law,  finance, 
and  real  estate;  and  the  third  the  actuarial,  medical,  and 
statistical  departments. 

The  Ordinary  field  administration  is  always  under  the 
immediate  direction  of  an  executive  officer,  usually  one  of 
the  vice  presidents.  The  territory  is  divided  into  sections, 
each  of  which  is  in  charge  of  a  manager,  who  will  have 
under  him  general  and  special  agents,  whose  principal  duty 
is  to  solicit  for  new  insurance.  Ordinary  agents  are  not  paid 
a  salary,  but  they  receive  a  commission  on  new  policies 
secured  and  a  renewal  interest  in  the  subsequent  premiums 
paid.  In  this  manner  permanent  relations  are  established 
between  the  company  and  its  Ordinary  field  force,  and  re- 
munerative incomes  are  built  up  by  degrees  as  the  result  of 
intelligent  effort.  The  office  work  in  connection  with  the 
Ordinary  department   is  quite   as  involved  as  an  intricate 

150 


Life  Insurance  as  a  Career 

method  of  bookkeeping,  and  therefore  offers  a  ready  field  for 
the  development  of  individual  ability. 

The  Industrial  field  operations  are  also  always  under  the 
charge  of  an  executive  officer,  generally  a  vice  president,  and 
subordinate  to  him  there  are  division  managers,  to  each  of 
whom  a  particular  section  of  the  country  is  assigned.  The 
actual  field  work  is  managed  by  a  district  superintendent 
with  assistant  superintendents,  under  each  of  whom  there 
are  a  number  of  agents,  who  collect  the  weekly  premiums 
and  solicit  new  insurance.  Industrial  agents  are  paid  a 
commission  for  collecting  the  regular  weekly  premiums  and 
a  special  commission  for  new  insurance  written.  Industrial 
agents  also  write  Ordinary  insurance  and  thus  considerably 
increase  their  incomes.  The  superintendents  and  assistants 
are  paid  a  fixed  salary,  but  they  have  an  interest  in  the  prog- 
ress of  the  district  and  they  receive  additional  compensa- 
tion for  Ordinary  insurance  secured  through  their  own 
efforts.  Inspectors  are  employed  for  the  purpose  of  in- 
vestigating different  districts  and  for  occasionally  taking 
charge  of  districts  during  the  temporary  absence  of  the 
superintendent,  or  for  other  reasons. 

The  general  office  organization  is  divided  into  a  large 
number  of  departments,  each  of  which  is  under  a  manager 
and  assistant  manager,  who  in  most  cases  have  reached  their 
positions  after  having  started  as  clerks  and  often  as  office  boys. 
The  most  important  departments  are  the  secretary's,  super- 
visor's, cashier's,  auditor's,  bookkeeper's,  policy  issue,  claim, 
purchasing,  editorial,  advertising,  mail,  printing,  and  supply. 
Some  companies  have  their  own  printing  department,  man- 
aged as  a  distinct  commercial  enterprise,  with  work  limited 
to  the  needs  of  the  company.  Life  insurance  companies 
usually  issue  weekly  or  monthly  publications  for  the  instruc- 
tion of  the  agency  force  and  the  information  of  the 
general  public. 

The  qualifications  for  employment  in  the  general  office 

I5I 


Life  Insurance  and  Other  Subjects 

departments  vary,  but  as  a  rule  the  commencement  is  in  an 
inferior  position,  from  which  promotions  are  made  to  junior 
clerks,  special  clerks,  assistant  managers  and  department 
managers  as  occasions  arise.  The  employment  is  practi- 
cally permanent,  once  a  position  of  some  importance 
has  been  attained,  for  the  unqualified  are  early  forced  out  of 
the  service  after  a  sufficient  trial. 

Most  of  the  legal  work  of  a  life  insurance  company  is  in 
connection  with  the  passing  upon  titles,  securities,  invest- 
ments, etc.,  but  there  is  opportunity  for  the  development  of 
legal  talent  of  a  high  order,  and  aside  from  the  usual  quali- 
fications, a  special  knowledge  of  corporation  law,  insurance 
law,  and  medical  jurisprudence  is  necessary  and  of  exceptional 
value. 

Under  direction  of  the  president,  the  finances  are  in  im- 
mediate charge  of  a  comptroller,  a  treasurer,  and  a  cashier. 
The  general  duties  in  this  department  resemble  the  manage- 
ment of  banks,  trust  companies,  etc.,  and  there  are  accord- 
ingly separate  divisions  for  the  conduct  of  the  different 
branches  of  the  work. 

The  actuary  has  entire  charge  of  the  actuarial  depart- 
ment, which  includes  the  scientific  calculation  of  premium 
rates  and  the  equally  complex  mathematical  considerations 
of  policy  valuations.  The  actuarial  department,  on  account 
of  its  highly  specialized  character,  is  divided  into  sections, 
according  to  the  extent  of  the  business  transacted,  and  while 
actuarial  work  is  largely  mathematical  it  is  by  no  means  en- 
tirely so.  The  marvelous  development  of  the  business  and 
the  multiform  supervision  of  life  insurance  companies  by 
the  different  States,  as  well  as  the  large  variety  of  policies 
issued  by  modern  and  progressive  companies,  impose  upon 
the  actuary  very  responsible  duties  and  functions.  The 
actuary  is  required  to  possess  not  only  a  general  knowledge 
of  insurance  principles  and  practice,  but  also  of  general 
mortality  and  vital  statistics,  insurance  law,  and  the  practice 


Life  Insurance  as  a  Career 

of  accounting,  together  with  a  thorough  knowledge  of  the 
theory  and  practice  of  taxation,  the  value  of  public  securities 
and  other  investments,  and  finally,  of  corporation  and  pub- 
lic finance.  The  modern  actuary,  in  fact,  must  have  a 
broad  knowledge  of  the  practice  of  life  insurance  in  all  its 
branches  to  render  accurate  judgment  upon  many  impor- 
tant questions  of  business  administration. 

The  medical  department  is  in  charge  of  the  medical  direct- 
ors, who  primarily  supervise  the  acceptance  of  risks  on  the 
basis  of  individual  medical  reports  made  by  local  medical 
examiners.  Every  risk  is  passed  upon  by  office  medical  ex- 
aminers, and  undesirable  risks  are  rejected.  The  require- 
ments for  employment  in  this  department  are  various,  but  a 
thorough  knowledge  of  the  theory  and  practice  of  medicine, 
medical  jurisprudence,  physical  diagnosis,  urinalysis,  etc.,  is 
essential.  Local  medical  examiners  are  paid  a  fee  for  each 
examination,  the  amount  of  which  varies  according  to  special 
and  well-defined  circumstances. 

Some  companies  maintain  a  statistical  department,  under 
the  direction  of  a  statistician,  whose  duties  include  the  collec- 
tion and  analysis  of  data  pertaining  to  life  insurance,  the 
tabulation  and  analysis  of  medical  statistics,  special  investi- 
gations into  mortality  problems  and  a  variety  of  other  duties 
not  readily  defined.  The  special  requirements  are  a  thorough 
knowledge  of  the  theory  and  practice  of  general  statistics, 
some  knowledge  of  mathematics,  and  a  broad  understanding 
of  social  and  economic  problems  and  of  longevity  as  affected 
by  occupation,  climate,  habits,  heredity,  etc.  An  indispens- 
able part  of  the  statistical  department  is  a  well-equipped 
library  of  insurance,  medicine,  law,  economics,  finance,  etc. 

In  a  general  way,  it  may  be  said  that  the  scientific  tem- 
perament is  most  likely  to  lead  to  success  in  home  office  ad- 
ministration. This  term  is  here  made  use  of  in  the  widest 
sense.  Perhaps  the  first  principle  of  success  is  absolute 
accuracy,  which,  in  other  words,  means  a  careful  training 

153 


Life  Insurance  and  Other  Subjects 

of  all  one's  faculties,  since  the  trained  eye  is  able  to  see  where 
the  untrained  eye  discerns  nothing.  Scientific  training,  as 
well  as  all  higher  education,  distinctly  qualifies  a  man  for 
administrative  responsibility. 

The  work  of  a  home  office  may  be  compared  to  the  work 
of  a  general  staff  of  an  army,  the  very  purpose  of  which,  in 
a  large  measure,  is  to  seek  the  problems  that  ordinary  ob- 
servers cannot  see.  If  anywhere  there  is  necessity  for  the 
preaching  and  practice  of  what  President  Roosevelt  calls  the 
gospel  of  intelligent  work,  it  is  in  the  office  and  field  adminis- 
tration of  a  life  insurance  company.  There  is  an  increasing 
demand,  not  only  for  men  of  energy  and  ability,  possessing 
integrity,  tact,  and  perseverance,  but  also  for  specialists,  to 
bring  to  a  higher  degree  of  efficiency  the  numerous  minor 
departments  for  the  investigation  of  facts  and  forces  beneath 
the  surface  of  everyday  business  experience.  The  demand 
for  young  men  of  exceptional  ability  is  out  of  all  proportion 
to  the  available  supply,  and  there  is  abundant  opportunity 
for  the  profitable  employment  of  men  of  higher  education, 
who  are  practically  certain,  other  things  being  equal,  to  make 
a  greater  success  in  the  field  of  life  insurance  than  in  most 
other  branches  of  commercial  enterprise. 

Higher  education  in  life  insurance  as  a  business  has  dur- 
ing recent  years  been  introduced  into  colleges  and  univer- 
sities, and  some  of  the  leading  institutions  now  have  general 
courses  in  insurance  which  possess  considerable  intrinsic 
merit,  aside  from  the  encouragement  given  to  the  develop- 
ment of  special  talents.  The  education  of  field  men  forms 
part  of  the  work  of  every  large  insurance  institution,  and, 
aside  from  manuals  of  instruction,  special  literature  on  par- 
ticular subjects,  leaflets  explaining  particular  policy  forms, 
etc.,  meetings  and  conferences  are  held,  at  which  agents  are 
addressed  by  qualified  speakers,  for  the  discussion  of  prob- 
lems of  practical  field  administration. 

The  work  of  agency  instruction  is  supplemented  by  life 

154 


Life  Insurance  as  a  Career 

underwriters'  associations,  which  usually  combine  social  and 
educational  advantages.  The  education  of  the  general  pub- 
lic in  insurance  principles  and  practice  is  also  an  important 
means  of  business  extension,  and  all  the  larger  companies 
publish  literature  for  the  information  of  the  public,  setting 
forth  the  advantages  of  particular  forms  of  insurance,  or  deal- 
ing with  matters  of  general  interest,  such  as  the  taxation  of 
life  insurance  companies,  the  social  duty  of  insurance,  the 
comparative  advantages  of  life  insurance  as  a  mode  of  thrift, 
etc.  Some  companies  have  published  their  history,  and  a 
number  of  valuable  works  on  the  technical  aspects  of  life  in- 
surance have  been  placed  on  the  market  by  insurance  pub- 
lishers. There  are  many  valuable  journals  devoted  entirely 
to  insurance  matters,  and  State  insurance  departments  an- 
nually publish  reports  which  contain  a  mass  of  information, 
with  the  essentials  of  which  every  agent  or  office  man  should 
make  himself  familiar.  The  social  aspects  of  life  insurance 
are  gradually  being  recognized  by  writers  on  questions  of 
social  reform  and  by  students  of  political  economy. 

There  is,  therefore,  a  considerable  basis  of  theory  and 
experience  available  to  students  of  insurance  problems,  rea- 
sonably sufficient  for  the  preliminary  technical  education  of 
those  who  make  a  choice  of  life  insurance  as  a  business  career. 
The  opportunities  for  individual  development  are  exceptional, 
but  the  business  is  exacting  in  its  details,  and  the  competition 
between  different  companies  is  so  keen  that  all  that  goes  to 
make  character  in  a  man  is  required  for  individuals  to  attain 
more  than  a  moderate  success.  While  it  is  entirely  true  to 
say  that  modest  success  is  possible  to  any  one  who  will  exert 
himself  with  a  reasonable  degree  of  efficiency  and  energy, 
it  is  equally  true  that  the  most  exacting  demands  are  made 
upon  trained  minds  to  meet  the  increasing  needs  of  a  rapidly 
growing  business.  Those  who  have  carefully  observed 
the  tendency  of  the  business  have  no  hesitancy  in  making 
the  prediction  that  within  another  thirty  years  the  present 

155 


Life  Insurance  and  Other  Subjects 

position  of  life  insurance  will  appear  as  insignificant  as  the 
position  of  the  business  in  1875  appears  to  us  at  the  present 
time;  and  it  would  seem  to  be  a  perfectly  rational  view  that 
the  intelligent,  industrious  and  tactful  young  man  is  not  likely 
to  be  in  error  in  making  a  choice  of  life  insurance  as  a  busi- 
ness career. 


*56 


Chapter  VIII 


THE    TAXATION    OF 
LIFE    INSURANCE 


AN   ADDRESS  DELIVERED   AT   THE  ANNUAL  MEETING 

OF  THE  ASSOCIATION  OF  LIFE   INSURANCE 

PRESIDENTS 

NEW  YORK,  DECEMBER  4,  1908 


THE    TAXATION 

OF     LIFE    INSURANCE    IN   THE 

UNITED    STATES 


f  the  many  important  questions  and  prob- 
lems in  life  insurance  administration,  one 
of  the  most  serious  at  this  time  demanding 
consideration  and  public  discussion  is  the 
I  unjust  and  burdensome  taxation  of  life  in- 
surance interests.  The  Association  of  Life 
Insurance  Presidents  performs  only  a  press- 
ing public  duty  by  bringing  this  matter  to  public  attention. 
Practical  suggestions  are  urgently  needed  as  to  the  best 
methods  and  means  by  which  a  further  increase  in  the  tax 
rate  can  be  effectually  resisted  and  a  material  reduction  in 
the  existing  tax  burden  secured. 

In  my  brief  discussion  of  the  subject  I  have  purposely 
avoided  technical  details  and  theoretical  considerations,  so  as 
to  emphasize  more  clearly  the  intensely  practical  aspect  of 
the  subject  as  it  confronts  the  administrative  officers  of 
American  life  insurance  companies  at  the  present  time. 
Whatever  opinion  may  be  held  as  to  where  the  burden  of 
taxation  falls  in  other  matters,  there  can  be  no  doubt  as 
regards  life  insurance,  for  there  the  policyholder,  and  the 
policyholder  only,  pays  the  tax  and  carries  the  burden. 

It  requires  no  lengthy  argument  to  establish  the  principle, 
both  in  morals  and  economics,  that  life  insurance  as  an  in- 
stitution making  so  decidedly  for  human  betterment  should 
not  be  taxed  at  all.  No  reasonable  objections  can  be  raised 
to  the  taxation  of  the  real  property  owned  by  life  insurance 
companies,  provided  it  is  taxed  at  the  same  rate  as  the  prop- 
erty of  other  commercial  institutions.  Nor  can  serious  ob- 
jections be  made  to  reasonable  license  fees  nor  to  the 
expenses  of  an  effective  system  of  State  supervision,  since 


161 


Life  Insurance  and  Other  Subjects 

these,  in  the  aggregate,  do  not  impose  a  very  heavy  burden 
upon  the  policyholders.  On  the  other  hand,  in  the  case  of 
State  supervision  the  policyholders  are  materially  benefited 
by  increased  security  against  possible  maladministration. 

The  real  evil,  however,  which  confronts  the  companies  at 
the  present  time  is  the  excessive  rate  of  taxes  on  premiums, 
which,  constituting  as  they  do  readily  apparent  evidences  of 
existing  wealth,  are  for  that  reason  among  the  most  conven- 
ient sources  of  State  taxation.  It  is,  however,  apparently  for- 
gotten that  by  indirection  life  insurance,  by  offering  protection 
at  moderate  cost  against  the  uncertainties  of  human  life, 
relieves  the  State  from  the  possible  and  serious  burden  of  sup- 
porting dependent  survivors  and  the. dependent  poor  in  their 
old  age.  No  other  social  institution,  not  even  savings  banks 
or  building  and  loan  associations,  useful  as  they  are,  serves  so 
unselfish  and  laudable  a  purpose  as  life  insurance  companies 
at  the  present  time.  In  return  for  this  service  to  the  State  life 
insurance  should  be  exempted  from  a  large  share  of  the  taxes 
which  are  now  imposed  upon  the  business  largely  because  the 
accumulations  are  a  matter  of  public  record  and  easily  reached 
by  the  tax-collector  as  visible  evidence  of  existing  wealth. 

It  would,  however,  serve  no  practical  purpose  at  this 
time  to  raise  the  purely  academic  question  as  to  whether 
insurance  should  be  taxed  at  all,  for  the  exigencies  of  govern- 
mental policy  will  continue  to  demand  a  fair  share  of  the 
policyholders'  accumulations  for  general  purposes  of  public 
taxation.  It  is  useless  to  strive  for  the  unattainable.  The 
real  question,  then,  which  confronts  the  administrative  offi- 
cers of  life  insurance  companies  is  not  whether  life  insur- 
ance as  an  institution  should  be  taxed  at  all,  but  rather  what 
should  be  the  most  practical  and  equitable  method,  and 
what  should  be  the  maximum  rate  consistent  with  the  needs 
of  government.  An  equitable  method  and  rate  having  once 
been  established,  any  future  attempt  to  increase  life  insur- 
ance taxation  should  be  most  vigorously  opposed. 

162 


The  Taxation  of  Life  Insurance 

The  facts  and  considerations  which  I  shall  present  are 
rather  for  the  purpose  of  emphasizing  an  important  duty  on 
the  part  of  all  administrative  officers  of  life  insurance  com- 
panies. We  should  enlist  public  opinion  generally  and  the 
co-operation  of  the  policyholders  in  particular,  in  a  deter- 
mined effort  to  oppose  any  further  increase  in  the  tax  burden 
already  carried  by  the  companies,  and,  as  far  as  possible,  to 
secure  a  material  reduction  in  the  rate,  making  it  more 
compatible  with  the  high  aims  and  purposes  of  life  insurance, 
which  are  for  the  public  good. 

In  round  figures,  American  legal-reserve  companies,  with 
a  gross  premium  income  of  $533,000,000  during  1907,  paid 
in  taxes,  licenses  and  fees  for  State  supervision  over  $1 1,000,- 
000,  or  a  sum  equivalent  to  2.1  per  cent,  of  the  premium 
income.*  In  the  last  ten  years  the  companies  have  paid  in 
taxes  of  all  kinds  the  enormous  sum  of  nearly  $85,000,000, 
and  by  just  so  much  the  net  cost  of  life  insurance  in  the 
United  States  has  been  increased,  to  the  decided  detriment  of 
the  companies  and  their  policyholders. 

The  general  method  of  insurance  taxation  in  the  United 
States  is  sufficiently  well  understood  to  require  no  extended 
discussion  to  emphasize  the  practical  difficulties  which  con- 
front the  administrative  officers  of  insurance  companies.  It 
needs  only  to  be  pointed  out  that  every  State  has  its  own 
method,  as  a  rule  so  complex  arid  involved  as  to  materially 
increase  the  office  expenses  of  the  companies  in  the  book- 
keeping, auditing,  legal,  and  other  departments.  For  the 
purpose  of  illustration,  however,  I  may  state  that  in  Mass- 
achusetts the  general  tax  is  one-fourth  of  one  per  cent,  on 
reserves;  in  Ohio  the  tax  is  two  and  one-half  per  cent,  on  the 
gross  premium  income,  less  return  premiums  and  reinsur- 
ance premiums  received  from  other  companies;  in  Indiana 
three  per  cent,  of  the  premium  income  after  deducting  losses; 

*  During  1908,  171  American  legal-reserve  companies,  with  a  gross  premium  income  of  $545,858,- 
410,  paid  in  taxes,  licenses,  and  fees  for  State  supervision  $12,352,292,  a  sum  equivalent  to  2.26  per  cent, 
of  the  premium  income. 

163 


Life  Insurance  and  Other  Subjects 

in  the  District  of  Columbia  one  and  one-half  per  cent,  after 
deducting  dividends ;  in  Arkansas  two  and  one-half  per  cent, 
on  premiums,  less  losses  and  commissions;  and  in  New 
Hampshire,  among  others,  one  per  cent,  on  gross  receipts. 

Equally  complicated  is  the  method  of  rendering  the 
annual  accounts.  For  example,  the  final  date  for  tax  pay- 
ments varies  all  the  way  from  January  31st,  in  Kentucky, 
to  November  30th,  in  Massachusetts.  Among  other  sug- 
gestive facts,  mention  may  also  be  made  of  the  method 
in  Montana,  where  counties  tax  excess  premiums  received 
over  losses  and  ordinary  expenses  incurred;  in  Kentucky  a 
tax  of  two  per  cent,  on  gross  premiums  is  charged,  and 
certain  cities  levy  an  additional  .tax  of  one  and  one- 
half  or  two  and  one-half  per  cent,  on  premiums  received 
on  new  business;  in  South  Carolina  quarterly  returns  are 
required  to  be  made  to  the  State,  showing  premium  receipts 
by  counties;  while  in  Texas  the  system  is  such  that  most  of 
the  large  and  representative  companies  have  left  the  State. 
The  mere  clerical  labor  involved  in  meeting  these  widely 
varying  requirements  is  a  very  considerable  item  of  cost  to 
the  policyholders,  which  is  not  included  in  the  enormous 
total  previously  given. 

Changes  are  made  nearly  every  year  in  the  taxing  methods 
of  some  State  or  other,  which  demand  constant  vigilance  to 
avoid  heavy  penalties  for  failure  to  comply  with  mere  techni- 
calities. "Each  age,"  as  has  been  well  said  by  a  distinguished 
authority  on  taxation,  "has  its  own  system  of  public  reve- 
nue .  .  .  and  ideals  of  justice  in  taxation  change  with  the 
alteration  in  social  conditions."*  There  is,  therefore,  hope 
that  in  the  future  the  method  of  insurance  taxation  will  be- 
come more  uniform  and  simplified.  There  is  indeed  strong 
encouragement  in  the  effort  of  this  association,  in  co-opera- 
tion with  the  Insurance  Commissioners  of  the  different 
States,  with  other  bodies  of  underwriters,  and  most  of  all 

*  Essays  in  Taxation,  by  E.  R.  A.  Seligman;   New  York,  1900,  p.  I. 

164 


The  Taxation  of  Life  Insurance 

through  the  intelligent  and  active  co-operation  of  policy- 
holders, to  bring  about  such  changes  as  are  most  conducive 
to  the  conservation  of  the  vital  interests  that  are  at  stake. 

Legislatures  in  time  will  realize  the  serious  implication 
of  the  words  of  Chief  Justice  Marshall,  "that  the  power  to 
tax  involves  the  power  to  destroy,"  and  that  overtaxation  of 
life  insurance  interests  must  unquestionably  be  followed 
by  serious  consequences  to  the  people  as  a  whole.  Con- 
ceding the  truth  that  "good  law  is  not  always  sound  eco- 
nomics,"* it  is  equally  true  that  economic  and  moral  princi- 
ples must  in  the  end  govern  any  rational  legislation  for  the 
common  good.  The  position  which  the  companies  take 
in  this  matter  is,  I  think,  not  opposition  to  taxation,  as  such, 
but  to  overtaxation  in  a  most  serious  form,  unquestionably 
detrimental  to  the  best  interests  of  the  policyholders  and 
the  public  at  large. 

To  make  this  assertion  as  clear  and  concise  as  possible, 
and  conclusive  for  the  end  in  view,  we  may  compare  the  tax 
burden  imposed  upon  life  insurance  companies  in  this  coun- 
try and  in  Germany,  omitting  details  and  dealing  only  in 
round  numbers  with  the  facts,  for  which  there  is  official 
authority,  derived  from  readily  accessible  sources.  I  have 
selected  the  German  Empire  for  purposes  of  comparison 
because  its  economic  and  financial  conditions  are  at  a  decided 
disadvantage  as  compared  with  those  of  the  United  States. 
The  problem  of  meeting  ever-increasing  military,  colonial, 
and  other  expenditures  has  left  to  that  country  few  sources 
for  additional  taxation.  It  might  well  be  assumed,  therefore, 
that  the  exigencies  of  the  situation  would  induce  the  Ger- 
man government  to  exact  the  largest  revenues  practicable 
in  the  form  of  taxation  from  the  life  insurance  companies 
of  the  Empire.  However,  according  to  the  official  returns, 
in  Germany,  during  1907,  life  insurance  companies,  with 
an  annual  premium  income  of  over  one  hundred  and  twenty 

*  Essays  in  Taxation,  by  E.  R.  A.  Setigman;   New  York,  1900,  p.  137. 

165 


Life  Insurance  and  Other  Subjects 

million  dollars,  paid  in  taxes  of  all  kinds  only  about  three 
hundred  thousand  dollars,  or  less  than  one-fourth  of  one 
per  cent,  of  the  premium  income!  This  is  indeed  a  humili- 
ating contrast  with  our  American  experience. 

In  brief,  if  the  rate  of  taxation  paid  by  German  life  in- 
surance companies  prevailed  in  the  United  States  there  would 
be  an  annual  saving  to  the  policyholders  of  our  country  of 
many  millions  of  dollars.  Considering  the  enormous  natural 
resources  of  this  country,  its  superior  economic  conditions, 
the  much  lighter  burdens  of  military  expenditures  and  pen- 
sions, it  is  greatly  to  the  credit  of  the  German  Empire  that 
it  should  have  refrained  from  drawing,  for  the  purpose  of 
general  taxation,  upon  the  funds  representing  the  best  evi- 
dence of  thrift,  self-sacrifice,  and  self-denial  which  can  be 
exhibited  by  any  people,  in  any  form,  at  any  time.  Other 
illustrations  could  be  cited  to  emphasize  further  the  asser- 
tion of  overtaxation  of  life  insurance  in  the  United  States, 
in  comparison  with  foreign  countries,  but  it  would  only  be 
cumulative  evidence. 

I  would,  therefore,  suggest  that  one  per  cent,  of  the  pre- 
mium income,  in  lieu  of  all  other  charges  except  taxes  on  real 
estate,  should  hereafter  be  considered  the  maximum  pre- 
mium income  tax  rate  on  life  insurance  that  should  ultimately 
obtain  throughout  the  United  States.  I  realize,  of  course, 
that  theoretically  some  other  basis  than  premium  income 
might  prove  a  more  satisfactory  method,  but  we  must 
take  into  account  existing  conditions  and  the  actual  practice 
of  many  years.  The  method  of  taxing  life  insurance 
premiums  as  a  convenient  basis  of  taxation  is  certainly 
more  firmly  established  than  any  other.  To  bring  about  a 
material  reduction  in  the  tax  rate,  less  radical  changes  in 
present  laws  will  be  necessary  if  this  method  of  taxation  is 
made  general  throughout  the  country.  To  secure  the  adop- 
tion of  a  theoretically  more  perfect  and  satisfactory  plan  of 
life  insurance  taxation  seems  hopeless.     A  uniform  premium 

166 


The  Taxation  of  Life  Insurance 

tax  of  not  more  than  one  per  cent,  would  not  be  an  insupport- 
able burden  upon  the  policyholders.  The  yield  of  such  a 
tax  would  in  any  event  very  much  more  than  pay  the 
necessary  cost  of  State  supervision. 

But  it  is  not  only  the  present  problem  of  overtaxation 
which  confronts  the  companies — even  more  of  a  menace  is 
the  constant  risk  of  a  further  increase  in  the  rate  as  the  re- 
sult of  new  statutory  requirements.  Unfortunately,  legisla- 
tures are  apt  to  proceed  upon  the  theory  of  an  eminent 
French  statesman:  "So  to  pluck  the  goose  as  to  produce  the 
largest  amount  of  feathers  with  the  least  possible  amount  of 
squealing."* 

Looking  backwards  over  a  period  of  years,  it  appears 
that  twenty  years  ago  the  rate  was  not  much  over  one  per  cent., 
and  by  1892  it  had  increased  to  1.5  per  cent.  During  the 
Spanish-American  war  there  was  a  further  rise  to  2  per 
cent,  in  1898,  and  to  2.2  per  cent,  in  1899,  while  during  1906 
and  1907  the  rates  have  been  2.07  per  cent,  and  2.08  per 
cent.,  respectively .f  The  question  may  well  be  asked,  Where 
is  this  increase  to  stop  ?  and  whether  there  is  not  a  practical 
certainty  that  the  rate  will  go  up  to  2.5  per  cent,  unless  the 
Association  of  Life  Insurance  Presidents,  in  behalf  of  the 
policyholders,  adopts  a  definite  policy  to  oppose  any  and 
every  increase  which  may  be  proposed  in  any  one  of  the 
different  States.  Such  resistance  is  a  public  duty  imposed 
upon  the  association  and  upon  the  companies  individually, 
to  safeguard  the  interests  of  the  policyholders,  who  are 
otherwise  a  defenseless  prey  of  ill-advised  legislation  and 
irrational  methods  of  overtaxation. 

It  is  an  encouraging  sign  that  the  subject  of  life  insurance 
taxation  has  been  taken  up  by  the  National  Convention  of 
Insurance  Commissioners.  Their  special  committee  on  tax- 
ation in  its  recent  report  condemns  the  taxing  of  life  insurance 

*  Colbert,  as  quoted  by  Hadley,  in  his  Economics,  p.  450. 

t  During  1908  the  taxes  paid  by  American  legal-reserve  life  insurance  companies  were  $12,352,292, 
or  equivalent  to  2.26  per  cent,  of  the  premium  income. 

i6y 


Life  Insurance  and  Other  Subjects 

companies  except  on  real  estate  owned  and  for  State  super- 
vision, and  points  out  that  the  present  premium  income  tax 
is  discriminatory  and  excessive.  Realizing,  however,  that  as 
a  practical  solution  of  the  problem  a  premium  tax  of  some 
kind  is  likely  to  prevail,  they  make,  among  other  recom- 
mendations, the  following:  "That  the  rate  of  the  premium 
income  tax,  if  one  be  imposed,  shall  be  fixed  by  methods 
that  will  give  some  assurance  of  equality  of  the  rate  with 
that  of  other  taxpayers."  The  suggestion  I  have  already 
made,  of  establishing  a  uniform  premium  tax  of  one  per  cent., 
is  in  close  agreement  with  this  recommendation. 

Every  policyholder  has  a  direct  personal  interest  in  this 
tax  problem,  and  the  value  of  his  aid  and  co-operation  in 
the  efforts  of  this  association  to  resist  any  further  increase 
in  the  rate  and  to  work  deliberately  for  a  material  reduction 
cannot  be  overestimated.  Such  a  reduction  in  the  case  of 
burdensome  or  unjust  taxation  is  not  without  precedent. 
The  income  tax  levied  during  our  great  exhausting  Civil 
War  never  amounted  to  more  than  2.5  per  cent,  on  gross  in- 
comes, or  identically  the  same  as  the  rate  of  life  insurance 
taxation  now  exacted  by  law  in  certain  States.  Although 
the  Federal  income  tax  was  the  immediate  result  of  the 
greatest  war  in  modern  history,  it  was  not  permitted  to  con- 
tinue a  day  longer  than  the  needs  of  the  nation  absolutely 
required.  The  arguments  which  were  then  put  forward  in 
Congress  for  its  reduction  or  repeal  apply  with  far  greater 
force  and  more  justice  to  the  reduction  or  repeal  of  taxes 
now  imposed  upon  life  insurance  premiums.* 

Insurance  history  is  not  without  precedent  for  favorable 
changes  in  tax  legislation,  for  in  times  past,  when  the  benef- 
icence of  insurance  was  less  clearly  realized,  taxes  which 
were  practically  prohibitive  were  imposed  upon  fire  insurance 
premiums.!  In  response  to  a  clear  presentation  of  the  facts 
the  earlier  prevailing  tax  rate  has  been  reduced,  and  in  cor- 

*  Speeches  and  Reports  on  Finance  and  Taxation,  by  John  Sherman;   New  York,  1879,  p.  371. 
t  Taxation  and  the  Funding  System,  by  J.  R.  McCulloch;   London,  1845,  pp.  285  et  seq. 

168 


The  Taxation  of  Life  Insurance 

responding  proportion  the  business  has  increased,  to  the 
incalculable  benefit  of  mankind.*  It  is  historically  true  that 
the  very  stamp  taxes  imposed  by  England  upon  the  Ameri- 
can colonies,  including  stamp  taxes  upon  insurance,  were 
less  burdensome,  all  things  considered,  than  the  taxes  im- 
posed upon  insurance  interests  at  the  present  time. 

It  is  an  accepted  canon  of  taxation,  laid  down  by  Adam 
Smith  more  than  a  century  ago,  that  "the  subjects  of  every 
State  ought  to  contribute  toward  the  support  of  the  govern- 
ment as  nearly  as  possible  in  proportion  to  their  respective 
abilities — that  is,  in  proportion  to  the  revenue  which  they 
respectively  enjoy  under  the  protection  of  the  State."  But 
the  revenue  of  life  insurance  companies  is  not  the  revenue 
of  corporations  for  profit-making  purposes,  but  the  accum- 
ulation of  a  trust  fund  chiefly  for  the  support  of  dependent  sur- 
vivors who  might  otherwise  become  a  charge  upon  the  State. 

It  is  another  accepted  canon  of  public  finance  that  "taxa- 
tion should  never  touch  what  is  necessary  for  the  existence 
of  the  contributor,"  and  certainly  no  argument  is  required  to 
sustain  the  contention  that  life  insurance  protection  is  an 
imperative  necessity  to  safeguard  the  mass  of  our  people 
against  the  humiliating  need  of  State  or  private  charit- 
able aid.  Life  insurance  in  itself  is  a  voluntary  tax,  self- 
imposed  by  the  most  thrifty  element  of  the  nation  and  for 
the  most  commendable  objects,  and  to  tax  such  effort  is  to 
hinder  thrift  and  to  hinder  the  development  of  the  finest 
traits  of  national  life  and  character."}* 

But  I  am  well  aware  of  the  practical  difficulties  which 
confront  life  insurance  companies  in  securing  radical  reforms 
in  taxation.  My  main  object  has  been  to  emphasize  the 
facts  of  the  situation  and  to  urge  the  serious  consideration 
of  the  subject  upon  the  administrative  officers  of  life  insur- 
ance companies  and  upon  earnest  and  impartial  students  of 

*  The  Fire  Insurance  Duty !  History  of  the  Agitation  for  Abolition  or  Reduction,  Showing  the  Duty 
to  be  Bad  in  Principle,  Obstructive  to  the  Progress  of  Insurance,  and  Opposed  to  the  Public  Interest. 
London, 1863. 

t  Public  Finance,  by  C.  F.  Bastable;   London,  1903,  pp.  411-421. 

i6g 


Life  Insurance  and  Other  Subjects 

insurance  methods  and  their  results,  but  most  of  all  upon 
the  vast  body  of  American  policyholders  who  carry  a  needless 
burden  of  expense  from  which  it  is  the  duty  of  the  State,  as 
far  as  possible,  to  relieve  them. 

I  therefore  repeat  that  if  the  German  Empire,  with  its 
vast  burden  of  military,  colonial,  and  other  expenditures  far 
in  excess  of  ours,  refrains  from  taxing  its  life  insurance 
policyholders  more  than  a  quarter  of  one  per  cent,  of  the  pre- 
mium income,  there  can  be  no  economic  or  political  justi- 
fication for  imposing  a  tax  of  two  per  cent,  (eight  times  as 
much)  upon  the  premium  income  of  American  life  insurance 
companies.*  If  the  great  State  of  New  York,  with  its  nu- 
merous State  and  municipal  expenditures  of  all  kinds,  refrains 
from  taxing  life  insurance  companies  more  than  one  per  cent, 
of  the  gross  premium  income,  I  insist  that  there  is  no 
justification  on  the  part  of  other  States  to  tax  life  insurance 
companies  at  a  higher  rate. 

If  the  average  rate  were  reduced  to  one-half  of  what  it  is 
at  the  present  time,  and  if  it  were  accepted  as  an  established 
practice  in  taxation  that  premium  receipts  of  life  insurance 
companies  should  under  no  circumstances  be  taxed  more 
than  one  per  cent.,  there  would  at  the  present  time  be  a  sav- 
ing to  the  policyholders  of  about  five  million  dollars  a  year, 
which  would  revert  to  them  in  the  form  of  larger  dividends 
or  a  corresponding  reduction  in  premiums. 

The  problem  before  us  is  a  practical  one.  Life  insurance 
is  greatly  overtaxed.  The  prospect  of  securing  the  general 
adoption  of  a  perfect  system  of  taxation  is  too  remote  for 
serious  consideration.  A  uniform  premium  income  tax  of 
one  per  cent,  would  be  a  practical  working  basis.  It 
would  more  than  repay  the  States  for  their  supervision  and 
protection  and  would  materially  decrease  the  cost  of  life  in- 
surance to  the  millions  of  American  policyholders. 

*  The  German  rate  of  insurance  taxation  is  derived  from  the  annual  report  of  the  Imperial  super- 
rising  insurance  department,  Berlin,  1908. 

iyo 


Chapter  IX 


THE 

REGULATION   OF  INSURANCE 

BY   CONGRESS 


AN    ADDRESS    DELIVERED 

AT    A    MEETING    OF    THE    BOSTON    LIFE 

UNDERWRITERS'    ASSOCIATION 

NOVEMBER    22,    1904 


THE     REGULATION     OF     INSURANCE 
BY    CONGRESS 

nsurance  in  all  its  branches  is  to-day  one 
)of  the  most  important  elements  of  general 
progress.  Within  twenty  years  the  funds 
)of  level-premium  life  insurance  companies 
alone  have  increased  from  five  hundred 
million  to  more  than  two  thousand  million 
dollars,  while  the  annual  income  during  the 
same  period  has  increased  from  less  than  one  hundred  million 
to  more  than  five  hundred  million  dollars.  A  business  of 
such  vast  proportions,  especially  as  carried  on  by  chartered 
companies,  has  properly  been  made  an  object  of  the  special 
solicitude  of  the  State,  and  almost  from  the  very  beginning  of 
insurance  as  transacted  by  moneyed  corporations  we  meet 
with  a  well-defined  attempt  at  State  legislation,  which  in 
course  of  time  has  been  developed  into  a  complex  system  of 
supervision,  regulation,  and  control.  The  resulting  problems 
to  the  companies  and  to  their  policyholders  are  serious,  and 
demand  the  most  careful  and  expert  consideration. 

The  modern  system  of  State  supervision,  which  originated 
in  Massachusetts  in  1855,  has  since  been  adopted,  more  or  less, 
by  every  State  and  Territory,  until  a  company  transacting 
a  national  business  is  subject  to  supervision  and  regulation 
by  some  fifty  different  supervising  authorities  or  insurance 
departments.  Aside  from  the  great  expense  involved  in  this 
form  of  oversupervision,  the  companies  are  required  to  de- 
vote much  time  and  thought  to  meet  demands  for  special 
information,  which,  when  furnished,  is  of  no  practical  use 
either  to  the  State  or  to  the  policyholders.  There  is  prob- 
ably no  other  business  in  which  the  art  of  accounting  and 
audit  is  carried  to  such  a  high  degree  and  in  which  the 
details  of  management  and  operation  are  so  thoroughly 
well  known  and  understood  as  in  insurance.     Not  only  do 

175 


Life  Insurance  and  Other  Subjects 

the  companies  suffer  from  overlegislation,  resulting  in  a 
body  of  laws  often  making  that  a  duty  in  one  State  which 
might  be  a  crime  in  another,  but  without  exception  this  sys- 
tem of  voluntary  thrift,  foresight,  and  prudence  is  made  the 
subject  of  excessive  taxation,  until  the  burdens  have  grown  to 
be  such  as  are  not  imposed  upon  any  other  form  of  enter- 
prise. During  a  period  of  forty  years  the  American  life  in- 
surance companies  alone  have  paid  in  the  form  of  taxes  the 
enormous  sum  of  about  one  hundred  million  dollars.  The 
present  annual  amount  paid  in  taxes,  licenses,  fees,  etc.,  is 
about  nine  million  dollars.*  This  practice  of  overtaxation 
is  contrary  to  every  sound  theory  of  social  and  political 
economy,  which  holds  that  life  insurance,  as  such,  should 
not  be  burdened  with  taxes  in  any  form;  but  it  seems  to  be 
the  modern  theory  of  the  State  that  these  taxes  may  be  im- 
posed and  that  they  may  be  increased  whenever  at  its 
pleasure  a  State  legislature  sees  fit  to  do  so. 

These  and  other  problems  have  been  confronting  the 
companies  for  almost  fifty  years,  but  in  a  more  aggravat- 
ing, vexatious,  and  burdensome  form  at  the  present  day, 
until  the  time  has  come  when  it  behooves  us  seriously  to  con- 
sider whether  relief  cannot  be  had  from  Congress  in  the 
form  of  an  act  substituting  Federal  regulation  of  the  inter- 
state insurance  business  of  the  companies  for  the  present 
method  of  oversupervision  by  some  fifty  different  insurance 
departments.  The  policyholders  and  the  agents,  as  well  as 
the  companies,  are  vitally  interested  in  this  question,  and 
this  is  my  excuse  for  bringing  the  matter  once  more  before 
you,  for  I  understand  that  on  at  least  two  previous  occasions 
you  have  given  consideration  to  this  subject. 

My  treatment  of  the  subject  will  be  largely  historical, 
for  it  is  not  so  much  what  I  myself  may  believe  to  be  the  best 
policy,  as  what  the  logic  of  events  and  actual  experience, 
extending   over    a    period    of   years,  demonstrates   beyond 

*  The  taxes  paid  during  1908  by  legal-reserve  life  insurance  companies  of  the  United  States 
amounted  to  $12,352,292. 

Zf6 


The  Regulation  of  Insurance  by  Congress 

controversy  to  be  required  for  the  absolute  security  and  pro- 
tection of  insurance  policyholders.  I  shall  therefore  draw 
freely  for  my  remarks  from  the  writings  of  those  who, 
with  exceptional  ability  and  insight,  have  considered  the 
problem  in  its  various  aspects,  from  the  inception  of  the 
idea,  in  1864,  to  the  present  time.  The  literature  of  the  sub- 
ject is  very  extensive,  and  I  can  touch  upon  only  a  few  essen- 
tial points,  but  I  make  grateful  acknowledgment  of  the  efforts 
of  all  who  in  the  past  have  done  so  much  to  advance  the 
cause  of  Federal  regulation,  especially  during  the  period 
when  the  outlook  for  ultimate  success  was  almost  hope- 
less. But  for  these  early  labors  in  behalf  of  a  cause  of  the 
utmost  importance  to  insurance  interests,  the  present  status 
of  the  question  would  not  warrant  the  firm  belief  that  the 
time  is  near  when  favorable  Congressional  action  may  be 
expected  to  put  an  end  to  what  has  become  an  intolerable 
situation  to  the  insurance  companies  and  their  policyholders. 

For  forty  years  efforts  have  been  made  to  secure  for  in- 
surance the  same  Federal  recognition  as  a  national  business 
that  has  been  extended  to  railroads,  telegraphs,  banks, 
and  many  other  commercial  interests.  The  passage  of  a 
national  banking  act  in  1864  suggested,  in  1865,  the  first 
agitation  for  the  Federal  regulation  and  control  of  insurance 
as  a  business  entitled  to  Federal  protection  against  interstate 
warfare  or  the  corporation  antagonism  of  one  State  against 
every  other.  The  history  of  this  effort  is  of  much  interest, 
since  it  explains  more  recent  tendencies  in  the  same  direc- 
tion and  emphasizes  the  vitality  of  the  idea  of  Federal 
regulation. 

As  early  as  1865  the  companies  found  it  necessary  and 
thought  it  expedient  to  address  to  Congress  a  memorial  asking 
for  relief  from  the  burdens  of  oversupervision  and  over- 
legislation.*  The  proposed  remedy  was  to  be  a  national 
incorporation  act  by  which  the  companies  would  become 

*  Insurance  Monitor,  1865,  p.  191. 

177 


Life  Insurance  and  Other  Subjects 

Federal  institutions  in  the  same  manner  as  national  banks 
had  been  established  under  the  act  of  1864.  Accordingly, 
in  1868,  a  bill  was  introduced  in  the  Senate*  conforming  in  its 
general  provisions  to  the  memorial  of  1865,  but  it  is  hardly 
necessary  to  say  that  the  bill  failed  to  become  a  law,  a  fate 
that  may  be  expected  of  any  measure  which  would  attempt  to 
deprive  the  States  of  their  constitutional  rights  to  create  cor- 
porations to  engage  in  interstate  commerce.  The  movement 
at  the  time,  however,  had  many  influential  friends  and  sup- 
porters, and  among  others  Mr.  Elizur  Wright,  the  well-known 
Insurance  Commissioner  of  Massachusetts,  who,  in  his  report 
for  1865,  gave  the  weight  of  his  authority  to  the  idea  of 
Federal  supervision  and  regulation  in  the  following  language: 

"Inasmuch  as  insurance  is  a  general  interest,  and  every 
insurance  institution  should  be  secured  as  much  as  possible 
against  the  adverse  operation  of  local  causes,  it  is  difficult  for 
us  to  perceive  why  the  supervision  of  all  insurance  companies 
of  every  sort  intended  to  operate  beyond  the  limit  of  State 
lines  should  not  be  a  function  of  the  general  government. 
There  seems  to  be  no  less  reason  for  regulating  it  by  a  na- 
tional bureau  than  for  taking  the  census  or  encouraging 
agriculture  or  invention  by  one.  Simplicity  and  economy 
alone  seem  to  require  it.  And  since  the  citizens  of  every 
State  do,  as  a  matter  of  fact,  largely  avail  themselves  of  every 
constitutional  right  to  the  privileges  of  citizens  of  other  States, 
it  may  well  be  questioned  whether,  in  regard  to  life  insurance 
especially,  any  State  can  protect  itself  as  well  as  it  might 
be  protected  by  the  general  government." 

Even  at  this  early  period  it  was  recognized  that  most 
valuable  aid  would  be  derived  from  the  support  and  co- 
operation of  agents  and  underwriters  generally.  Accord- 
ingly Mr.  C.  C.  Hine,  the  late  editor  of  the  Insurance  Moni- 
tory prepared  a  circular  in  support  of  a  national  insurance 
law,  which  was  widely  distributed  over  the  country.     The 

*  Reprinted  in  full  in  the  Insurance  Times,  1868,  p.  42. 

178 


The  Regulation  of  Insurance  by  Congress 

language  of  the  circular  applies  in  part  to  present-day 
conditions  as  truthfully  as  to  those  of  forty  years  ago  : 

"Legislation  in  the  several  States  toward  the  insurance 
companies  of  sister  States  has  proceeded  in  a  spirit  of  per- 
sistent and  injurious  hostility,  until  it  has  created  an  almost 
prohibitory  burden  of  taxes,  forced  loans,  deposits,  licenses, 
subsidies,  compulsory  advertising  fees,  etc.,  etc.,  State, 
county,  and  municipal,  that  would  surpass  the  belief  of  one 
not  familiar  therewith.  Generally  these  laws  do  not  look 
to  the  real  security  of  the  policyholder  or  the  strength  of  the 
companies,  but  are  apparently  conceived  in  a  temper  of  ex- 
tortion and  unfriendliness  to  enterprises  that  are  the  hand- 
maids of  commerce  and  the  guardians  of  all  our  destruct- 
ible values." 

Naturally  these  propositions  for  Federal  interference  in 
what  was  apparently  a  domestic  affair  of  the  States  were 
strongly  opposed  by  those  who  adhered  to  a  narrow  theory 
of  States'  rights  against  the  larger  conception  of  nationality. 
To  the  friends  of  the  measure  it  was  clear,  however,  that  the 
business,  within  a  measurable  distance  of  time,  was  des- 
tined to  become  more  and  more  national  in  character  and 
extent,  and  as  such  was  even  then  rightfully  entitled  to  Fed- 
eral recognition  and  regulation.  The  prevailing  opinion 
in  favor  of  such  a  measure  was  ably  set  forth  in  a  learned 
article  in  the  Monitor,*  which  said  in  part: 

"At  an  early  period  of  our  history  the  want  of  uniformity 
in  our  trade  relations  had  resulted  in  serious  inconveniences, 
and  in  1787  Alexander  Hamilton,  in  the  Federalist,  declares 
that  the  interfering  and  unneighborly  relations  of  some  States, 
contrary  to  the  true  spirit  of  the  Union,  have,  in  different 
instances,  given  fair  cause  of  umbrage  and  complaint  to 
others,  and  it  is  to  be  feared  that  examples  of  this  nature, 
if  not  restrained  by  a  national  control,  will  be  multiplied 
and  extended  until  they  become  not  less  serious  sources  of 

*  Insurance  Monitor,  1866,  pp.  53-54. 

179 


Life  Insurance  and  Other  Subjects 

animosity  and  discord  than  injurious  impediments  to  the  in- 
tercourse between  the  different  parts  of  the  confederacy.  In 
spite  of  the  precautions  subsequently  taken,  Mr.  Hamilton's 
predictions  have,  as  our  insurance  companies  can  testify, 
been  literally  fulfilled,  and  nothing  but  decisive  Congressional 
legislation  can  prevent  the  accomplishment  of  the  remainder 
of  this  prophecy,  which  is,  that  we  may  reasonably  expect 
from  the  gradual  conflicts  of  State  regulations  that  the  citi- 
zens of  each  will  at  length  come  to  be  treated  by  the  others 
in  no  better  light  than  that  of  foreigners  and  aliens." 

These  apprehensions  of  interstate  warfare  have  been  ful- 
filled to  the  letter  in  more  recent  years. 

In  1868  a  new  factor  entered  into  the  consideration  of 
the  subject,  unexpected  at  the  outset.  A  decree  was  ren- 
dered by  the  United  States  Supreme  Court  in  the  case  of 
Paul  vs.  Virginia,  and  made  public  some  time  during  Decem- 
ber, which  seemed,  for  the  time  at  least,  effectually  to  bar 
all  hope  of  relief  from  oversupervision  and  overlegislation 
through  the  Federal  government.  Insurance,  by  this  de- 
cision, was  declared  not  to  be  commerce,  and  therefore  not 
subject  to  Federal  control.  This  decision  has  given  rise 
to  endless  discussions,  which  it  would  be  neither  profitable 
nor  desirable  to  revive  at  the  present  time.  The  argument 
may  be  summed  up  in  the  statement  that  while  the  decision 
of  the  Supreme  Court  seemed  to  dispose  of  the  view  that  in- 
surance was  commerce,  in  the  same  manner  as  banking, 
transportation,  telegraph  messages,  etc.,  it  in  fact  did  not  do 
so.  That  decision,  and  those  which  have  followed,  did  not  re- 
late to  the  real  point  involved  in  a  consideration  of  the  regula- 
tion of  the  insurance  business  as  interstate  commerce  by  the 
Federal  government.  This  point  cannot  be  considered  by 
the  Supreme  Court  until  after  Congress  has  passed  a  law  reg- 
ulating such  business  in  general  conformity  with  the  Inter- 
state Commerce  Act. 

It  is  the  opinion  of  qualified  authorities  who  have  given 

180 


The  Regulation  of  Insurance  by  Congress 

most  careful  consideration  to  this  aspect  of  the  subject,  and 
who  have  properly  taken  account  of  several  recent  important 
decisions  of  the  Court  involving  similar  questions,  that  under 
the  implied  and  resulting  powers  of  the  Constitution  the 
Supreme  Court  would  not  withhold  the  verdict  of  constitu- 
tionality from  an  act  of  Congress  declaring  interstate  insur- 
ance to  be  interstate  commerce. 

The  defeat  of  the  bill  in  1868  did  not  discourage  those 
who  were  in  favor  of  national  regulation  and  supervision. 
The  insurance  journals  of  the  period  contain  many  able  and 
instructive  dissertations  illustrating  the  evils  and  burdens 
of  oversupervision  and  overlegislation  and  pointing  to 
the  necessity  for  relief  through  Congress.  What  has  given 
rise  to  so  many  perplexing  situations  during  recent  years, 
on  account  of  conflicting  laws  and  conflicting  opinions  of 
the  Insurance  Commissioners  of  the  different  States,  or  of 
different  Commissioners  of  the  same  State,  was  anticipated 
in  an  article  in  the  Insurance  Times  of  1869,*  from  which  I 
quote  in  part  as  follows: 

"The  cost,  immense  and  oppressive  as  it  will  prove,  is 
not,  however,  the  only  consequent  grievance  of  which  the 
companies  will  have  cause  to  complain.  The  laws  of  the 
different  States  will  conflict,  and  their  partiality  will  lead 
to  hostility,  retaliation,  bitterness  of  feeling,  mutual  injury, 
and  disaster.  It  is  impossible  to  foresee  one-half  of  the 
long  train  of  evils  which  will  certainly  afflict  insurance 
through  this  multiform  and  onerous  legislation  in  so  many 
different  sections.  The  ruinous  system  is  already  taking 
root,  and  before  it  becomes  ineradicable  the  leading  insur- 
ance companies  ought  to  combine  and  move  at  once,  with 
all  the  influence  and  power  they  can  command,  to  save  them- 
selves from  destruction  by  this  many-headed  hydra." 

These  apprehensions  of  serious  danger,  threatening  the 
very  existence  of  the  companies,  were  proven  by  subsequent 

*  March,  1869,  p.  179. 

181 


Life  Insurance  and  Other  Subjects 

bitter  experience  to  be  well  founded.  Those  who  are 
familiar  with  the  dark  side  of  insurance  history  during  the 
early  seventies  need  not  be  reminded  of  the  considerable 
number  of  failures  of  companies,  many  of  which,  it  is  clear  to 
us  to-day,  might  have  been  saved  under  a  more  effective  system 
of  State  supervision  and  control.  It  has  been  stated  time  and 
again  by  those  thoroughly  familiar  with  the  facts*  that  insur- 
ance companies  otherwise  destined  to  a  long  career  of  useful- 
ness were  wrecked  and  forced  into  liquidation  by  a  defective 
system  of  State  supervision,  which  attempted  to  manage 
the  companies,  instead  of  leaving  the  management  and  the 
responsibility  therefor  to  the  officers,  stockholders,  or  trustees. 

While  up  to  this  time  most  of  the  agitation  for  Federal 
supervision  had  come  from  the  life  insurance  companies* 
some  of  the  large  fire  and  accident  companies  now  com- 
menced to  take  an  active  interest  in  the  subject.  The  late 
president  of  the  Travelers  was  one  of  the  first  to  favor  Federal 
regulation,  and  he  adhered  to  that  view  to  the  end  of  his  life. 
Aid  also  came  from  an  unexpected  source,  in  that  the  Treas- 
urer of  the  United  States,  in  his  annual  report  to  the  Secre- 
tary, called  attention  to  the  need  of  Federal  regulation  of 
insurance/}-  Two  life  insurance  companies  had  been  granted 
national  charters,  under  which  they  were  required  to  make 
deposits  with  the  national  government.  After  calling  attention 
to  the  need  of  adequate  legislation,  Mr.  Spinner  concludes: 

"In  this  connection  it  may  perhaps  not  be  inopportune 
to  suggest  the  propriety  of  having  established  by  law  of 
Congress  a  governmental  bureau,  to  have  charge  of  the 
affairs  of  all  kinds  of  insurance  companies  and  associations 
in  the  same  manner  as  the  Comptroller  of  the  Currency 
now  has  charge  of  the  affairs  of  all  the  banks  that  issue 
paper  money  in  the  United  States." 

I  am  citing  these  illustrations  as  evidence  of  the  univer- 
sality of  the  idea  and  the  growth  of  the  conviction  that  for 

*  State  Supervision  of  Insurance,  in  the  Independent  for  1891. 
t  Annual  Report  of  the  Secretary  of  the  Treasury  for  1871,  p.  266. 

182 


The  Regulation  of  Insurance  by  Congress 

the  more  effective  protection  of  the  interests  of  insurance 
policyholders  the  increasing  importance  of  the  business  de- 
manded its  nationalization  by  the  Federal  government.  The 
companies  have  never  objected  to  supervision  by  the  State 
from  which  they  derive  the  charters  which  give  them 
corporate  existence.  What  they  do  object  to  and  what 
they  protest  against  in  behalf  of  their  policyholders  is  over- 
supervision  and  overlegislation  by  other  States,  much,  if 
not  most,  of  which  is  a  distinct  hindrance  and  in  many 
respects  a  serious  menace  to  the  best  administration  of  these 
useful  institutions. 

That  the  demand  for  Federal  legislation  came  not  alone 
from  the  companies  is  made  evident  by  suggestions  for  an  ap- 
peal to  be  made  to  Congress  by  life  insurance  policyholders,  in 
1877,  requesting  the  Federal  government  to  interfere  in  their 
behalf  and  pass  a  law  calculated  to  reduce  or  mitigate  their 
wrongs  and  hardships  and  prevent  their  recurrence.*  If 
these  efforts  were  to  small  purpose,  they  nevertheless  had 
considerable  educational  value.  A  few  years  later,  in  a  special 
pamphlet,  Mr.  Nat  Tyler,  of  Washington,  D.  C,  for  the 
first  time  brought  the  subject  before  the  public  in  a  conven- 
ient form,  but  then,  as  now,  most  of  the  objections  against 
the  passage  of  a  Federal  insurance  law  were  based  upon 
the  assumption  that  the  decision  in  the  case  of  Paul  vs. 
Virginia  would  act  as  a  bar  and  that  the  United  States  Su- 
preme Court  would  declare  such  an  act  unconstitutional. 
This,  in  my  opinion,  as  I  have  previously  pointed  out,  is 
an  unwarranted  assumption  not  sustained  by  the  facts  of 
our  constitutional  history.  I  have  it  on  high  authority  that 
since  the  Constitution  went  into  effect,  in  1789,  there  have 
probably  not  been  a  score  of  cases  in  which  an  act  of  Con- 
gress has  been  declared  unconstitutional,  and  of  these  I  do 
not  think  even  one  affects  Congressional  action  regarding 
the  clause  regulating  commerce  between  the  States. 

*  Insurance  Times,  1877,  p.  631. 

183 


Life  Insurance  and  Other  Subjects 

The  continued  agitation  for  Federal  regulation  of  in- 
surance in  1885  induced  the  then  Commissioner  of  Massa- 
chusetts, Mr.  Tarbox,  to  consider  the  subject  in  the  light 
of  his  own  experience,  and  his  conclusion  was  as  follows : 

"I  am  not  satisfied  that  insurance  has  yet  so  far  outgrown 
State  jurisdiction  as  to  become  a  fit  subject  of  Federal  control 
and  regulation.  But  I  recognize  the  embarrassment  it  may 
suffer  from  this  conflict  of  laws  of  the  different  States.  This 
consideration  enforces  the  wisdom  of  a  generous  reciprocity 
between  the  States,  and  counsels  that  legislation  affecting 
insurance  interests  should  be  framed  in  a  liberal  spirit  and 
regardful  to  relations  and  effects  without,  as  well  as  within, 
State  boundaries.  For  while,  for  certain  political  objects,  the 
States  are  several,  in  commercial  intercourse  they  are  one.  If 
State  legislatures  will  wisely  respect  this  community  of  States 
and  the  reciprocal  obligation  it  creates,  the  time  is  remote, 
if  ever,  when  occasion  will  arise  for  Federal  intervention." 

Unfortunately  for  the  companies  and  their  policyholders, 
State  legislatures  rarely  act  wisely  on  questions  of  interstate 
comity,  and  we  have  during  recent  years  seen  more  of  inter- 
state warfare  and  of  antagonism  against  the  corporations 
of  other  States  than,  as  far  as  I  know,  had  been  the  case  in 
the  past.  Few  men  have  written  more  ably  upon  this  as- 
pect of  the  question  than  the  late  Mr.  Batterson,*  who,  re- 
ferring to  the  case  of  a  western  State,  said : 

"When  Wisconsin,  for  example,  by  an  act  of  her  legisla- 
ture, forbade  the  corporations  created  by  other  States  from 
removing  causes  of  action  to  the  Federal  courts,  it  was  well 
known  that  the  act  was  unconstitutional,  but  it  was  done 
because  the  penalty  of  expulsion  was  considered  sufficient 
to  prevent  any  corporation  from  availing  itself  of  a  guaran- 
teed right.  To  this  guarantee  the  State  of  Wisconsin  be- 
came a  party  by  the  most  solemn  obligation  when  she  ratified 
the  Constitution  and  was  admitted  to  the  Union  of  States. 

*  Interstate  Warfare  and  How  It  Affects  the  Insurance  Business,  Hartford,  Conn.,  1898,  p.  13. 

I84 


The  Regulation  of  Insurance  by  Congress 

Moved,  however,  by  local  prejudice,  she  deliberately  re- 
pudiated her  guarantee  and  expelled  the  company  to  which 
she  owed  this  sacred  obligation.  It  was  an  act  of  bad  faith 
in  the  performance  of  her  undertaking  to  sustain  the  Con- 
stitution for  the  unworthy  purpose  of  compelling  an  en- 
franchised corporation  to  submit  to  her  own  tribunals  with- 
out exercising  the  guaranteed  right  of  removal." 

It  is  legislation  of  this  nature  which  lies  at  the  root  of 
the  agitation  for  Federal  regulation  and,  if  necessary,  for 
Federal  control.  It  was,  in  fact,  the  passage  of  so-called 
deposit  laws  by  the  different  States  during  the  early  sixties 
which  produced  the  revolt  against  oversupervision  and  over- 
legislation  as  inimical  to  the  best  interests  of  the  policy- 
holders and  opposed  to  the  best  interests  of  the  companies. 

In  1892  life  insurance  was  indirectly  represented  in  Con- 
gress by  Mr.  John  M.  Pattison,  the  president  of  the  Union 
Central  Life  Insurance  Company.  Mr.  Pattison  introduced 
a  bill*  providing  for  the  national  supervision  of  insurance 
companies  and  the  national  jurisdiction  over  all  insurance 
companies,  of  whatsoever  kind,  engaged  in  an  interstate 
business.  It  provided  for  a  national  bureau  of  insurance 
at  Washington,  to  be  presided  over  by  a  commissioner  of 
insurance,  with  power  to  issue  licenses  to  the  companies, 
authorizing  them  to  do  business  in  any  State  or  Territory, 
subject  to  no  other  requirements  than  those  enacted  by 
the  Congress  of  the  United  States  and  by  the  State  in 
which  the  company  was  organized.  The  companies  were 
required  to  make  reports  to  the  national  bureau  practically 
identical  with  the  reports  made  to  the  various  State  depart- 
ments at  that  time,  but  they  were  not  to  be  required  to  make 
thereafter  reports  to  the  insurance  departments  of  any 
other  State  than  the  one  from  which  they  had  derived  their 

*  Reprinted  in  full  in  Views,  1892,  p.  160.  Views  is  an  insurance  publication  established  in 
Washington,  D.  C,  in  1889,  by  Mr.  Max  Cohen,  editor,  primarily  for  the  purpose  of  agitating  the  ques- 
tion of  national  regulation  of  insurance,  of  which  Mr.  Cohen  has  made  a  life  study.  Views  is  a  mine  of 
valuable  information,  including  reprints  of  most  of  the  important  measures  and  papers  bearing  on  the  sub- 
ject which  have  been  published  during  the  last  fifteen  years. 


Life  Insurance  and  Other  Subjects 

charter.  The  bill,  in  spite  of  many  excellent  provisions, 
was,  unfortunately,  weighted  down  with  too  many  minor 
provisions  and  matters  of  detail,  which  gave  rise  to  an  oppo- 
sition sufficiently  strong  to  prevent  a  favorable  report. 

Mr.  Pattison,  in  1893,*  in  a  discussion  of  his  bill,  pointed 
out  that  it  was  not  intended  to  abolish  State  supervision  as 
such,  for  even  if  that  were  possible  he  would  not  consider  it 
desirable.  The  object  was  to  give  the  United  States  govern- 
ment control  of  the  interstate  business  of  the  insurance 
companies,  leaving  to  the  commissioner  of  each  State  con- 
trol of  everything  pertaining  to  the  fire,  life,  and  accident 
companies  of  his  own  State.  Had  the  measure  passed,  the 
resulting  relief  to  the  companies  from  oversupervision  and 
overlegislation  would  have  been  very  considerable. 

The  defeat  of  the  bill  of  1892  only  increased  the  agitation 
for  Congressional  action  and  every  further  discussion  at- 
tracted friends  and  supporters  to  the  proposed  measure 
providing  for  the  regulation  of  insurance  by  the  Federal 
government.  Some  of  the  strongest  advocates  of  such  a 
measure  were  insurance  commissioners  of  large  experience, 
and  at  nearly  all  the  annual  conventions  following  1895  the 
matter  was  discussed  in  papers  of  great  merit  and  permanent 
value  as  contributions  to  the  literature  of  this  important 
subject.  Among  those  who  came  out  openly  in  favor  of  a 
Federal  law  governing  insurance  was  Mr.  William  A.  Fricke, 
the  then  Insurance  Commissioner  of  Wisconsin,  who  first 
mentioned  the  subject  in  his  report  for  1895,  where  he  said: 

"The  reasons  for  national  regulation  of  insurance  are 
many — the  objections  few.  We  have  now  forty-nine  differ- 
ent insurance  codes,  forty-nine  different  modes  of  taxation, 
and  almost  forty-nine  different  kinds  of  supervision;  there  is 
no  attempt  at  uniformity  of  legislation;  with  a  national  de- 
partment we  should  have  better  insurance  laws,  they  could 
not  be  so  localized  and  tainted  with  local  prejudices." 

*  Address  at  meeting  of  Boston  Life  Underwriters'  Association — Views,  1893,  p.  253. 

186 


The  Regulation  of  Insurance  by  Congress 

Mr.  Fricke  has  restated  his  position  from  time  to  time 
with  admirable  clearness  and  a  thorough  grasp  of  the  princi- 
ples involved  and  the  results  to  be  obtained. 

There  are  those,  of  course,  who  conscientiously  believe  in 
our  present  system  and  consider  national  regulation  as  an 
unwarranted  interference  with  the  rights  of  the  States.  It  is 
held  that  by  co-operation  of  insurance  commissioners  much 
oversupervision  may  be  avoided,  and  it  is  but  right  to  say 
that  some  good  has  been  accomplished  in  this  direction;  but, 
reviewing  the  thirty-five  annual  conventions  of  insurance 
commissioners  which  have  been  held  since  the  first  meeting 
in  1 87 1,  the  unsuccessful  efforts  to  secure  uniformity,  and 
most  of  all  co-operation,  among  the  States  in  the  vital  matter 
of  expensive  investigations  do  not  make  the  outlook  for  the 
future  encouraging.  As  an  illustration,  I  may  recall  that  at 
the  annual  convention  in  1898*  the  committee  on  laws  and 
regulations  reported  a  resolution  which  read  as  follows: 

"That  as  the  Constitution  of  the  United  States  requires 
each  State  to  accord  full  faith  and  credit  to  the  public  acts, 
records,  and  judicial  proceedings  of  every  other  State, 
in  the  benign  and  patriotic  spirit  of  this  requirement,  the 
insurance  department  of  each  State  should,  as  far  as  pos- 
sible, leave  the  supervision  of  every  insurance  company  of 
another  State  to  the  proper  department  of  that  State,  accept- 
ing the  results  and  records  of  its  supervision  and  examina- 
tions; and,  in  particular,  the  special  examination  of  the  assets, 
methods,  and  accounts  of  a  company  should  as  far  as  possible 
be  conducted,  when  such  examination  is  necessary,  by  the  de- 
partment under  whose  jurisdiction  it  is  organized,  and  that  the 
department  of  any  State  should  decline  to  undertake  such 
special  examination  of  a  company  of  another  State  in  which 
a  similar  department  is  established  by  law,  unless  upon  the 
invitation  of  such  department,  or,  unless  such  department, 
after  direct  request  for  the  results  of  an  examination  has 

*  Proceedings  of  the  29th  Session,  p.  64. 

l87 


Life  Insurance  and  Other  Subjects 

been  made,  shall  have  refused  to  report  the  same  in  satisfac- 
tory detail  or  neglects  to  make  such  examination  within  a 
reasonable  period  of  time." 

If  this  idea  could  have  been  carried  out  it  would  have 
removed  one  of  the  most  serious  objections  to  the  present 
system  of  State  supervision,  but  it  is  significant  to  find  that 
the  resolution  failed  of  adoption  by  an  overwhelming 
majority. 

What  is  known  as  the  "Piatt  Bill"*  was  introduced  in 
the  United  States  Senate,  December,  1897;  in  a  general  way 
it  conformed  to  the  present-day  requirements,  outlined  in  the 
Pattison  bill  of  1892.  The  Piatt  bill,  for  various  reasons, 
among  others  on  account  of  the  pressure  of  business  result- 
ing from  the  war  with  Spain,  failed  of  passage,  and  even  on 
reconsideration  at  a  later  session  efforts  to  obtain  favorable 
action  were  unsuccessful.  Referring  to  this  attempt  to 
secure  Federal  legislation  on  the  subject  of  insurance,  the 
Spectator ;  in  January,  1898,  said  in  part  as  follows: 

"It  seems  clear  that  it  is  the  duty  of  Congress  to  so  legis- 
late, from  time  to  time,  as  to  keep  the  laws  of  the  country 
abreast  with  modern  ideas,  and  to  accord  recognition  to 
everything  that  will  stimulate  and  facilitate  interstate  com- 
merce and  friendly  and  business  intercourse  between  the 
citizens  of  the  different  States.  The  growth  of  the  country 
and  its  development  in  wealth  and  prosperity  are  dependent 
upon  its  so  doing.  It  has  the  power  most  unquestionably  un- 
der the  Constitution  to  designate  the  factors  that  go  to  make  up 
interstate  commerce,  and  to  legislate  for  their  regulation  and 
supervision.  It  has  so  legislated  regarding  railroad  and 
steamboat  transportation,  regarding  banking,  telegraph 
lines,  etc.,  and  it  has  but  to  declare  insurance  to  be  a  neces- 
sary factor  of  interstate  commerce  to  have  it  recognized  as 
such  by  the  courts  of  the  country." 

This  view  of  the  matter  covers  the  subject  in  its  essentials 

*  Reprinted  in  full  in  Views,  1897,  pp.  279-81. 

188 


The  Regulation  of  Insurance  by  Congress 

and  defines  the  position  upon  which  any  further  efforts  to 
secure  national  recognition  must  rest.  Insurance  is  to-day 
one  of  the  most  important  factors  which  enter  into  com- 
merce, trade,  and  industry,  and  whatever  can  be  said  in 
favor  of  the  national  regulation  of  banks  and  railways  holds 
good  with  equal  force  in  the  case  of  insurance.  Just  as  we 
would  not  for  a  moment  tolerate  the  idea  of  repealing  our 
national  banking  and  interstate  commerce  legislation,  so,  I 
am  satisfied,  the  people  would  never  regret  the  passage  of  an 
act  of  Congress  regulating  insurance  between  the  States.  It 
is  my  firm  conviction  that  such  an  act  would  be  productive 
of  most  excellent  results,  increasing  the  security  of  insurance 
to  the  policyholders,  diminishing  the  now  considerable 
amount  of  needless  clerical  labor  to  meet  the  requirements 
of  some  fifty  different  States  and  Territories,  decreasing  the 
expense  rate,  decreasing  the  burden  of  taxation,  increasing 
the  returns  to  policyholders,  and  thus  decreasing  the  cost 
of  insurance,  broadening  the  scope  of  administration,  and, 
in  a  word,  nationalizing  the  business.  Such  an  act  would 
give  to  insurance  the  protection  of  the  Federal  government, 
to  which  it  is  rightfully  entitled,  because  its  universality  and 
high  social  and  economic  functions  now  make  it  indispensa- 
ble to  the  welfare  of  the  people  of  this  nation. 

Something  substantial  has  been  achieved  during  the  past 
year.  The  new  Department  of  Commerce  and  Labor,  through 
the  Bureau  of  Corporations,  is  by  law  required  to  report  upon 
insurance  companies  and  their  business.  In  the  original 
draft  of  the  measure  providing  for  the  organization  of  the 
Department  of  Commerce  and  Labor,  a  bureau  of  insur- 
ance was  provided  for  and  the  Committee  on  Interstate 
and  Foreign  Commerce  of  the  House  of  Representatives 
reported  in  favor  of  such  a  bureau,*  holding  that  "  the 
insurance  interests  of  our  country  have  become  so  great, 
and  the  business  of  insurance  is  so  essentially  a  matter  of 

*  "Organization  and  Law  of  the  Department  of  Commerce  and  Labor,"  Washington,  D.  C,  1904, 
p.  542,  et  seq. 

l89 


Life  Insurance  and  Other  Subjects 

interstate  business,  and  hence  largely  beyond  any  effectual  con- 
trol by  the  State  authorities,  that  your  committee  has  recom- 
mended the  establishment  of  a  bureau  of  insurance     . 

"It  seems  evident  that  it  is  time  for  the  national  gov- 
ernment to  take  such  notice  of,  and  exercise  such  control 
over,  insurance  companies  as  it  may  be  entitled  to  under  the 
Constitution,  to  the  extent,  at  least,  of  the  publication  of 
information  of  general  interset." 

In  debate,  however,  the  measure  met  with  strong  oppo- 
sition from  those  who  relied  in  the  main  upon  the  antiquated 
theory  derived  from  the  Paul  vs.  Virginia  decision.  As  a 
compromise,  the  duty  of  the  Bureau  of  Corporations  with 
respect  to  insurance  was  limited  to  the  gathering  and 
publication  of  useful  information  concerning  corporations 
engaged  in  interstate  commerce,  including  corporations  en- 
gaged in  insurance.  For  the  present  this  may  be  considered 
a  substantial  gain,  for  we  have  now  for  the  first  time  Federal 
recognition  of  insurance  as  a  factor  of  progress  demanding 
national  consideration. 

We  may  recall  that  it  is  hardly  more  than  a  year 
since  a  department  of  commerce  and  labor  was  established, 
after  an  agitation  which  also  carries  us  back  to  1864,  when 
it  was  first  proposed  to  organize  a  department  of  industry. 
Ten  years  later  a  bill  was  introduced  in  the  House  providing 
for  the  establishment  of  a  department  of  manufactures  and 
mining.  During  the  twenty  years  following,  practically 
every  year  some  request  or  other  was  made  of  Congress  to 
give  a  special  recognition  to  commerce  and  manufactures 
by  providing  for  a  separate  department  with  representation 
in  the  Cabinet.  It  was  not  until  1903  that  these  efforts, 
extending  over  a  period  of  almost  forty  years,  were  crowned 
with  success.  A  similar  history  of  continuous  effort  pre- 
cedes the  enactment  of  nearly  every  important  measure. 
Hence  we  may  look  hopefully  forward  and  anticipate  favor- 
able  action  which  will    finally  give  to  insurance  the  same 

igo 


The  Regulation  of  Insurance  by  Congress 

Federal  recognition  which  has  been  given  to  other  important 
national  interests. 

What  I  have  said  must  not  be  construed  into  an  attack 
on  State  supervision  as  such,  for  I  have  personally  the  high- 
est regard  for  many  of  the  commissioners,  with  whom  I 
have  often  come  in  contact  and  with  whom  I  have  had  con- 
siderable business  relations  during  almost  thirty  years.  I 
believe,  with  Mr.  John  A.  McCall,  president  of  the  New 
York  Life  Insurance  Company,  that  State  supervision  of 
insurance,  within  proper  limitations,  has  served  a  useful  pur- 
pose and  is  to-day  indispensable  to  the  conduct  of  the  busi- 
ness. I  believe  its  scope  could  be  broadened  and  its  effective- 
ness increased,  especially  in  the  direction  of  stamping  out 
fraudulent  insurance  enterprises  and  preventing  the  robbery 
of  the  public  by  ill-advised  and  often  criminal  methods  of 
deception  in  the  name  of  insurance.  My  remarks  apply 
primarily  to  oversupervision  and  overlegislation,  especially 
in  so  far  as  the  interstate  business  of  the  companies  is 
affected.  I  believe  that  in  a  great  nation  like  ours  no 
hindrance  should  be  placed  upon  the  highest  development 
of  this  form  of  protection  for  the  masses  in  every  section 
of  the  land.  I  am  opposed  to  the  abuse  of  the  principle  of 
State  supervision  which  has  for  its  aim  the  control  of  the 
companies  by  dictatorial  and  arbitrary  methods,  and  which, 
by  abrogating  the  legitimate  functions  of  executive  officers 
by  a  forced  policy  or  method  of  business  conduct,  tends  to 
produce  conditions  at  variance  with  the  established  and 
tried  principles  which  underlie  the  insurance  business. 

We  cannot,  if  we  are  faithful  as  trustees  of  a  sacred 
charge  of  immense  magnitude,  abandon  our  position  as 
executive  officers  to  an  insurance  commissioner  who  is 
practically  certain  to  be  a  man  of  much  less  experience  than 
ourselves.  What  President  Alexander  has  said*  of  the 
difficulties  of  his  company  (the  Equitable)  with  the  Prussian 

*The  Hazard  of  Inexperience,  a  lecture  delivered  in  the  Yale  Course  on  Insurance,  Yale  Alumni 
Weekly  Supplement,  July,  1904,  p.  121. 

IQI 


Life  Insurance  and  Other  Subjects 

government  applies  equally  to  the  difficulties  of  our  home 
companies  with  the  different  State  governments,  namely, 
that  we  are  not  willing  to  transfer  the  executive  authority 
of  our  companies  to  the  capitals  of  the  various  States,  and 
that  we  must  firmly  decline  to  comply  with  demands  which 
are  as  unreasonable  as  they  are  unjust. 

At  the  outset  I  spoke  of  the  marvelous  development  of 
American  life  insurance  during  the  last  twenty  years.  This 
wonderful  growth  is  but  a  part  of  the  progress  of  the  nation 
at  large,  which  challenges  the  admiration  of  the  world  and 
which  justifies  the  earlier  hopes  and  aspirations  of  the  found- 
ers of  our  Republic.  Little,  however,  could  even  the  most 
sanguine  have  foreseen  of  the  universal  prosperity  and  high 
standard  of  life  insurance  to  which  we  have  attained  in  so  re- 
markably short  a  period.  We  anticipate  no  reaction,  but, 
on  the  contrary,  we  look  forward  to  a  future  in  which  this 
business  of  ours  will,  more  and  more,  assume  the  beneficent 
mission  of  a  universal  provident  institution.  This  develop- 
ment is  advanced  by  the  largest  amount  of  freedom  consist- 
ent with  safety,  and  whatever  tends  to  hinder  this  growth 
is  decidedly  pernicious. 

That  a  large  amount  of  liberty  in  the  management  of  life 
insurance  companies  is  not  inconsistent  with  the  best  in- 
terests of  the  people  is  shown  in  the  successful  workings 
of  the  act  passed  by  the  British  Parliament  in  1870,  for  the 
regulation  of  insurance  in  that  country.  Although  more 
than  thirty  years  have  passed,  few  amendments  have  been 
made  to  this  simple  but  effective  statute.  Nor  need  we 
apprehend  an  abuse  of  Federal  power  in  the  regulation  of 
insurance  between  the  States  any  greater  than  experience 
has  proven  in  the  successful  workings  of  the  National  Bank- 
ing Act  of  1864.  It  may  be  of  interest  to  you  to  learn  that 
the  total  cost  of  examinations  in  connection  with  the  gov- 
ernment supervision  of  over  five  thousand  national  banks 
during  1903  was  only  $325,000,  or  an  average  of  about 

IQ2 


The  Regulation  of  Insurance  by  Congress 

for  each  bank.  The  maximum  cost  of  such  an  examination 
of  a  bank  with  large  resources  has  only  been  $2,700.  While 
the  comparison  is  not  of  exactly  comparable  institutions,  it 
is,  nevertheless,  an  extremely  suggestive  one.  No  system 
of  national  supervision  or  regulation  will  entirely  prevent 
failures  among  banks  any  more  than  it  will  prevent  acci- 
dents on  railways  or  the  occasional  mismanagement  of 
insurance  companies.  All  government  in  this  respect  has 
its  limitations,  for,  finally,  human  institutions  derive  their 
worth  from  the  character  of  those  who  are  responsible  for 
their  management. 

That  something  is  intrinsically  wrong  in  our  present  sys- 
tem of  oversupervision  and  overlegislation  is  made  clear 
by  reference  to  my  earlier  statement  of  an  annual  tax  burden 
of  some  nine  million  dollars  paid  by  life  insurance  compa- 
nies alone;  and  I  may  cite  as  a  pertinent  illustration  the  case 
of  the  Wisconsin  Insurance  Department,  which  last  year 
collected  over  five  hundred  thousand  dollars  from  insurance 
companies,  while  less  than  twenty  thousand  dollars  were 
required  for  the  administration  of  the  department.  North 
Carolina  collects  annually  over  two  hundred  thousand  dol- 
lars from  insurance  companies,  while  less  than  five  thousand 
dollars  are  required  for  the  maintenance  of  the  department. 
This  practice  of  excessive  taxation  is,  of  course,  common  to 
many  other  States.  Such  facts  as  these,  and  I  quote  illustra- 
tions ready  at  hand,  warrant  the  conclusion  that  in  many 
cases  these  departments  exceed  their  proper  function  and 
become  mere  agencies  for  the  collection  of  taxes  from  certain 
corporations  of  other  States,  which  are,  in  fact,  social  insti- 
tutions which  ought  to  be  relieved  largely  or  wholly  from 
burdens  that  retard  the  highest  development  of  foresight, 
prudence,  and  thrift  among  our  people. 

Insurance  is  to-day  a  universal  provident  institution  reach- 
ing all  classes  and  affecting,  more  or  less,  all  commercial  inter- 
ests. It  is  an  essential  element  of  human  progress  and  a  method 

193 


Life  Insurance  and  Other  Subjects 

and  means  for  the  uplifting  of  the  masses  to  a  higher  level 
of  economic  security.  It  has  become  national  in  character, 
and  few  companies  confine  their  operations  to  a  single  State; 
in  fact,  if  operations  were  so  limited  they  might  prove  dis- 
astrous and  make  the  conduct  of  the  business  impossible. 
The  American  Constitution  was  wisely  framed  to  meet  for 
all  time  our  needs  as  a  free  and  progressive  people  and  this 
instrument  is  applicable  to,  and  has  never  failed  to  meet, 
new  conditions  and  new  problems  which  in  the  course  of 
time  must  inevitably  arise  as  society  advances  and  civiliza- 
tion develops  conditions  unthought  of  at  an  earlier  date. 
In  the  words  of  the  distinguished  jurist,  Stephen  Dudley 
Fields,*  "the  framers  of  the  government  could  not  fore- 
see all  exigencies  which  might  arise  in  the  future,  and, 
therefore,  after  expressing  the  great  ends  for  which  the 
government  was  framed  and  the  powers  conferred  upon 
it,  they  meant  to  leave  the  choice  of  means  generally  to  the  dis- 
cretion of  Congress."  It  is  upon  this  inherent  element  of 
adaptability  in  our  Constitution  to  meet  the  requirements  of 
new  conditions  that  we  may  safely  rely  for  a  favorable  ruling 
from  our  highest  tribunal,  should  the  Supreme  Court  ever  be 
required  to  pass  upon  the  question  whether  an  act  of  Congress 
regulating  insurance  between  the  States  is  constitutional. 

It  is  difficult  for  me  to  understand  why  insurance  is  not 
commerce  within  the  meaning  of  the  Constitution  when,  from 
the  first  to  the  last,  every  authority  on  the  history  of  commerce 
has  conceded  insurance  to  be  an  indispensable  factor  in  com- 
mercial growth  and  development.  Of  the  men  who  helped  to 
frame  the  Constitution,  few,  if  any,  gave  more  careful  con- 
sideration to  the  commerce  clause  than  Alexander  Hamilton, 
and  his  famous  argument  on  the  constitutionality  of  the 
United  States  bank  contains  a  specific  reference  to  insurance, 
apparently  overlooked  by  those  who  have  written  upon  the 
subject  of  insurance  regulation  by  Congress.    Hamilton,  after 

*  In  the  case  of  William  McCardle,  involving  the  constitutionality  of  the  methods  employed  to  re- 
organize the  government  of  the  rebellious  States,  1868. 

194 


The  Regulation  of  Insurance  by  Congress 

pointing  out  that  all  the  powers  conferred  in  the  Constitution 
are  not  specifically  mentioned,  enumerates  certain  "palpable 
omissions"  and  items  "which  admit  of  little,  if  any,  question," 
and  among  these  "the  regulation  of  policies  of  insurance"* 

Hamilton,  no  doubt,  had  made  a  study  of  insurance  law 
and  was  familiar  with  the  great  work  of  Park,  first  pub- 
lished in  1786,  or  about  five  years  before  he  delivered  his 
"Opinion."  Park  wrote,  what  holds  true  to-day  even  more 
than  a  hundred  years  ago,  that: 

"The  utility  of  this  species  of  contract  in  a  commercial 
country  is  obvious,  and  has  been  taken  notice  of  by  very 
distinguished  writers  upon  commercial  affairs.  Insurances 
give  great  security  to  the  fortunes  of  private  people,  and  by 
dividing  amongst  many  that  loss,  which  would  ruin  an  in- 
dividual, make  it  fall  light  and  easy  upon  the  whole  society. 
This  security  tends  greatly  to  the  advancement  of  trade  and 
navigation,  because  the  risk  of  transporting  and  exporting 
being  diminished,  men  will  more  easily  be  induced  to  engage 
in  an  extensive  trade,  to  assist  in  important  undertakings, 
and  to  join  in  hazardous  enterprises,  since  a  failure  in  the 
object  will  not  be  attended  with  those  dreadful  consequences 
to  them  and  their  families  which  must  be  the  case  in  a  coun- 
try where  insurances  are  unknown." 

A  similar  view  of  the  close  relation  of  insurance  to 
commerce  appears  to  be  held  by  every  important  writer 
upon  the  origin  of  insurance^  and  the  law  of  insurance  in 
its  most  modern  interpretation.  Hence,  the  omission  of  any 
reference  to  insurance  in  the  commerce  clause  of  the  Con- 
stitution would  seem  to  be  due  to  the  same  cause  which 
Chief  Justice  Marshall,  in  the  leading  case  of  Gibbons  vs. 

*  Legal  Masterpieces,  edited  by  Vecder,  St.  Paul,  Minn.,  1903,  vol.  I,  p.  229. 

t  Corbyn  Morris,  in  An  Essay  Towards  Illustrating  the  Science  of  Insurance,  published  in 
London,  1747,  wrote:  "Insurance  is  that  Aid.  whereby  the  national  Commerce  is  supported  .  .  .His 
evident,  that  Insurances  give  Tranquillity  and  Cheerfulness  to  the  extensive  Trader  :  These  only  make 
it  justifiable  for  him  to  venture  in  many  Branches  of  Commerce,  which  are  of  great  Benefit  to  the  Nation  : 
These  enable  him  to  lay  a  steady  Foundation  of  Credit.  To  procure  Money  upon  easy  Terms,  And  to  bring 
his  Goods  cheap  to  the  foreign  Markets.  It  is  indeed  from  these  only  that  he  can  often  be  said  to  be 
worth  anything  with  Certainty,  or  can  at  some  times  justly  pretend  to  borrow  at  all  ;  And  to  these  the 
Nation  is  indebted,  that  many  useful  Articles  of  Trade  are  rendered  either  reasonable,  or  practicable,  to 
be  carried  on  by  its  Subjects." 

J95 


Life  Insurance  and  Other  Subjects 

Ogden,  has  held  to  apply  to  navigation.  In  the  words  of 
the  great  Chief  Justice:  "All  America  understands,  and  has 
uniformly  understood,  the  word  'commerce'  to  compre- 
hend navigation.  It  was  so  understood,  and  must  have  been 
so  understood,  when  the  Constitution  was  framed."  And  in 
the  same  sense  I  believe  all  America  to-day  understands  the 
word  "commerce"  to  comprehend  insurance,  and  I  am  firm  in 
my  conviction  that  whenever  Congress  shall  find  it  expedient 
to  legislate  upon  the  subject,  or  when  in  the  course  of  time 
the  necessity  shall  arise,  insurance  between  the  States  will 
be  made  a  matter  of  Federal  legislation. 

It  may,  of  course,  be  argued  that  if  the  framers  of  the 
Constitution  intended  to  confer  this  power  upon  Congress, 
insurance  would  have  been  expressly  mentioned.  The 
Constitution  is  an  instrument  dealing  with  general  condi- 
tions, and  not  with  special  conditions  which  may  arise  in  the 
course  of  time  and  become  more  and  more  important. 

Insurance,  when  the  Constitution  was  adopted,  was  of 
only  local  importance  and  was  limited  practically  to  the 
marine  branch  of  the  business.  The  development  of  the 
modern  system  of  insurance,  especially  of  life  contingencies, 
has  resulted  in  new  conditions  and  new  problems  which  are 
plainly  beyond  the  power  of  the  States  to  supervise  or  regu- 
late. Insurance  is  not  a  thing  of  an  hour,  but  is  an  enduring 
institution,  and  I  cannot  but  think  that  a  broad  and  im- 
partial consideration  of  the  subject  will  ultimately  obtain 
for  what  is  now  a  national  business  legitimate  and  effective 
regulation  by  the  national  government.  I  earnestly  hope 
that  the  time  is  not  far  distant  when,  as  a  permanent  relief 
from  the  needless  and  increasing  burdens  of  oversupervision, 
overlegislation  and  overtaxation,  and  as  an  additional  security 
for  the  protection  of  our  policyholders,  we  shall  have  an  act 
of  Congress  regulating  insurance  between  the  States. 


196 


Chapter   X 


THE  COMMERCIAL  ASPECTS  OF 

FEDERAL  REGULATION 

OF  INSURANCE 


AN   ADDRESS    DELIVERED 

AT    THE 

THIRTY-EIGHTH  ANNIVERSARY   BANQUET 

OF  THE 

NEWARK   BOARD   OF  TRADE 

JANUARY   18,    1906 


THE  COMMERCIAL  ASPECTS  OF  FEDERAL 
REGULATION  OF  INSURANCE 

ihe  proper  supervision,  regulation  and  con- 
trol of  insurance  companies  have  become 
I  problems  of  national  importance,  chiefly 
because  of  the  enormous  extent  of  the  busi- 
ness and  the  fact  that  the  contracts  are,  in 
I  the  majority  of  cases,  made  by  parties  resi- 
dent in  one  State  with  parties  resident  in 
another.  There  has,  therefore,  come  about  a  perfectly  nat- 
ural demand  that  insurance  companies  should  be  made  sub- 
ject to  the  restrictive  power  and  general  supervision  of  the 
Federal  government,  in  much  the  same  manner  as  the  Fed- 
eral government  exercises  control  over  national  banks,  and 
railways  engaged  in  interstate  commerce.  The  proposi- 
tion appeals  with  peculiar  force  to  commercial  interests, 
since  in  one  way  or  another  insurance  enters  into  all  of  our 
commercial  transactions  and  forms  a  substantial  item  of  ex- 
pense in  every  mercantile  account.  Insurance  constitutes  a 
part  of  the  price  of  nearly  every  article  sold  for  public  con- 
sumption, and  while  the  unit  cost  of  insurance  is  infinitesimal, 
the  aggregate  paid  for  fire,  marine,  inland,  and  miscellaneous 
insurance  amounts  to  about  three  hundred  and  fifty  million 
dollars  per  annum — a  not  inconsiderable  burden  upon  our 
commerce,  both  at  home  and  abroad.  Insurance,  in  other 
words,  is  a  factor  in  commerce  and  peculiarly  a  mercantile 
interest,  and  whatever  way  the  business  can  be  advanced,  its 
cost  reduced,  and  the  security  made  more  certain  concerns  all 
who  are  engaged  in  commerce,  transportation,  or  mercantile 
transactions  generally. 

For  some  years  efforts  have  been  made  to  secure  for  in- 
surance adequate  and  consistent  national  laws  along  the  same 
lines  as  have  been  followed  in  interstate  commerce  generally, 
in  national  banking,   and,  since   1898,  in   bankruptcy.     In 

201 


Life  Insurance  and  Other  Subjects 

the  last  Congress  I  introduced  a  bill  to  this  effect,  but  only 
to  secure  for  it  a  public  expression  of  opinion  as  to  its  merits. 
The  new  bill*  introduced  by  me  this  week  is  a  modified  and 
materially  improved  measure,  which,  if  passed,  will  bring  the 
insurance  business  within  the  full  scope  and  power  of  Federal 
laws.  After  carefully  considering  the  subject  for  many 
years,  both  in  the  light  of  theory  and  large  practical  experi- 
ence, I  have  become  convinced  that  legislation  of  this  charac- 
ter is  demanded  by  the  necessities  of  our  national  growth 
and  our  progress  in  industry  and  commerce,  and  that  what 
is  to-day  a  vast  business  of  national  extent  is,  as  such,  en- 
titled to  the  protection,  care,  and  solicitude  of  Congress. 

It  is  difficult  to  realize  the  immense  growth  and  the 
marvelous  changes  in  our  position  as  a  commercial  nation 
during  recent  years  without  the  aid  of  a  mass  of  statistical 
data,  which  would  be  out  of  place  on  this  occasion.  In  a 
general  way,  however,  I  may  point  out  that  this  country  is 
to-day  different  in  all  essentials,  save  our  fundamental  polit- 
ical principles,  from  what  it  was  at  the  time  when  the  Con- 
stitution was  adopted.  In  1790  our  population  was  four 
millions,  as  contrasted  with  more  than  eighty  millions  at  the 
present  time.  In  1790  the  aggregate  value  of  our  exports 
was  estimated  at  $20,000,000,  or  a  per  capita  of  about  $5,  in 
contrast  with  which  we  now  export  about  $1,500,000,000 
per  annum,  or  $18  per  capita.  The  adoption  of  the  Constitu- 
tion not  only  made  us  a  nation,  but  stamped  upon  us  our  com- 
mercial character,  which  destined  us,  in  due  course  of  time, 
to  attain  to  the  leading  position  in  the  world  of  commerce, 
trade,  and  industry.  Chiefly,  however,  our  growth  has  been 
in  the  direction  of  internal  development,  and  our  inland  trade 
and  general  business  to-day  is  of  vastly  greater  proportions 
than  both  our  exports  and  imports  combined.  At  the  time 
of  the  constitutional  convention  there  were  no  railways, 
no   canals  of  commercial  value,   hardly   any   wagon-roads 

*  Senate  3026,  59th  Congress,  1st  Session,  January  15,  1906. 

202 


The  Commercial  Aspects  of  Insurance 

connecting  one  State  with  another,  no  business  corporations 
of  importance,  and  no  insurance  companies  or  insurance 
business  in  the  sense  and  to  the  extent  that  that  term  is  now 
commonly  understood  and  as  it  is  established  by  commercial 
custom  and  usage.  The  times  and  conditions  have  changed, 
and  our  earlier  restricted  policy  has  been  replaced  by  a  broad 
conception  of  national  interest  and  expansion. 

Our  internal  expansion  and  development  began  with  the 
era  of  internal  improvements  (1806),  and  this  has  continued 
until  the  United  States  of  to-day  is  an  imperial  domain  with 
more  productive  wealth  per  capita  and  a  more  general  meth- 
od of  distribution  than  any  other  country  in  the  world.  By 
1800  only  nine  hundred  and  three  post-offices  had  been  estab- 
lished, with  an  annual  revenue  of  $280,000,  while  to-day  there 
are  some  seventy-five  thousand  offices,  with  an  annual  reve- 
nue exceeding  $150,000,000.  There  was  then  no  telegraph, 
which  to-day  transmits  over  one  hundred  million  messages 
per  annum,  and  no  telephone,  the  general  utility  of  which 
can  neither  be  expressed  in  figures  nor  computed  in  mone- 
tary equivalents.  There  was  then  but  the  very  beginning 
of  insurance,  which  to-day  is  the  foremost  single  financial  in- 
terest in  this  land.  Marine  insurance  was  the  first  to  become 
a  commercial  necessity,  perhaps  more  so  at  that  time  than 
at  the  present,  on  account  of  the  great  development  of 
steam  navigation,  the  more  accurate  charting  of  the  coast, 
resulting  in  a  lesser  number  of  shipwrecks,  the  extension  and 
perfection  of  our  magnificent  lighthouse  service,  and,  last 
but  not  least,  a  more  intelligent  and  efficient  pilotage.  Fire 
insurance  followed,  and  soon  became  recognized  even  by 
moralists  as  a  duty  incumbent  upon  the  debtor  in  order  to 
fully  protect  the  interest  of  the  creditor.*  Without  fire  in- 
surance protection  the  world's  inland  commerce  could  not  be 
carried  forward  to-day  on  anything  like  the  existing  scale,  nor 
would  it  be  possible  to  secure  the  vast  amount  of  mortgage 

*  Jonathan  Dymond,  Essays  on  Morality,  New  York,  1836,  p.  111. 

203 


Life  Insurance  and  Other  Subjects 

indebtedness  at  the  prevailing  low  rates  of  interest.  While 
it  is  true  that  a  considerable  part  of  our  inland  commerce  is 
not  specifically  protected  by  insurance,  an  open  policy  of 
insurance,  as  a  rule,  protects  the  carrier,  who  assumes  the 
responsibility  to  the  shipper  in  the  event  of  loss.  In  all  our 
immense  warehouse  and  elevator  transactions  the  fire  in- 
surance policy  is  as  much  a  necessity  as  the  certificate  estab- 
lishing the  ownership  of  the  goods  in  storage  or  awaiting 
shipment.  In  addition  to  these,  numerous  other  forms  of 
insurance  have  been  developed,  all  of  which  have  become 
more  or  less  indispensable  aids  to  commerce  and  industry. 
Among  these  I  may  mention  fidelity  and  surety,  employers' 
liability,  plate-glass,  credit,  and  general  accident  insurance. 
All  of  these  forms  of  insurance  protection  reduce  the  element 
of  uncertainty  in  commercial  operations  and  increase  com- 
mercial efficiency,  and,  directly  or  indirectly,  as  the  case  may 
be,  increase  to  a  considerable  extent  our  commercial  ex- 
pansion both  at  home  and  abroad.* 

This  point  of  view  is  not  new,  but  nearly  as  old  as  the 
business  of  insurance  itself,  and  commercial  losses  due  to 
fire,  shipwreck,  and  other  casualties  are  no  longer  met  by 
general  charitable  contributions,  but  the  reimbursement  for 
such  losses  is  made  through  associated  effort  represented  by 
corporations  transacting  the  business  of  insurance.  As  early 
as  1796  this  aspect  of  the  insurance  problem  was  brought  to 
the  attention  of  Congress  in  an  attempt  to  secure  pecuniary 
relief  for  the  sufferers  from  a  great  conflagration  which  de- 
stroyed the  larger  portion  of  the  city  of  Savannah.  It  was 
urged  in  the  argument  in  favor  of  the  plea  that  not  a  public 
building,  not  a  place  of  public  worship  or  of  public  justice 
remained,  that  all  was  a  wide  waste  of  ruin  and  desolation; 
and  the  speaker  expressed  the  hope  that  some  relief  would 
be  afforded  the  city  in  its  unexampled  distress.  In  reply, 
however,  it  was  said,  and  very  properly  so,  that  if  Congress 

*  See  also  Report  of  the  Merchant  Marine  Commission,  Senate  Report  2755,  58th  Congress,  3rd 
Session,  index  p.  1926. 

204 


The  Commercial  Aspects  of  Insurance 

were  to  set  a  precedent  in  this  direction  and  accustom  the 
public  to  rely  upon  the  national  legislature  for  relief  in  cases 
of  this  kind,  there  would  be  neither  any  occasion  for  insurance 
companies  nor  any  inducement  to  improve  the  methods  of 
building.  This,  I  think,  is  the  first  reference  to  insurance 
in  the  debates  of  Congress.* 

Under  modern  conditions  insurance  has  become  a  neces- 
sity, for  individual  protection  or  that  of  the  family  can  no 
longer  be  left  to  friends  and  relatives,  with  burdens  enough 
of  their  own,  but  the  risk  inherent  in  the  uncertainty  of  human 
existence  must  be,  and  is,  assumed  by  insurance  corporations. 
Contracts  made  to  this  effect  with  well-established  companies 
are  carried  out  to  the  letter,  and  very  often  beyond  the  letter 
of  the  mere  written  agreement  between  the  insurer  and  the 
insured.  In  whatever  respect  insurance  management  may 
have  failed  to  meet  the  highest  expectation  or  the  most  severe 
test  of  public  criticism,  it  is  something  very  considerably  to 
the  credit  of  American  insurance  companies  that  on  the  whole 
and  with  no  important  exceptions  they  should  so  successfully 
have  met  their  contract  obligations  dollar  for  dollar,  not  only 
to  the  letter  of  the  law,  but  in  a  spirit  of  justice  and  fair 
dealing  to  the  insured.  It  is  due  to  this  fact  that  insurance 
has  become  a  national  interest,  and  is  now  included  in  prac- 
tically every  sphere  of  human  activity,  every  branch  of  trade 
and  industry,  every  line  of  progress  and  development,  in 
which  this  nation,  advancing  at  a  more  rapid  rate  than  any 
other,  has  forged  its  way  to  the  foremost  position  among 
the  civilized  countries  of  the  world.  Insurance  to-day  is  not 
a  local  interest  in  the  ordinary  sense  of  the  word,  but,  on  the 
contrary,  it  is  an  interstate  or  a  national  interest  in  the  vast 
majority  of  the  transactions  which  are  carried  on  between 
the  companies  and  the  policyholders. 

All  of  the  large  companies  are  practically  national  in  the 
extent  of  their  operations,  transacting  business  in  every  State 

*  Benton's  Abridgement  of  the  Debates  of  Congress  from  1789  to  1856,  vol.  II,  p.  40. 

205 


Life  Insurance  and  Other  Subjects 

and  Territory  of  the  Union,  and  this  is  because  of  modern 
commercial  necessities  and  not  merely  as  a  matter  of  profit- 
able business  extension.  Goods  shipped  from  Duluth  or  St. 
Louis  to  the  seaboard  to  be  transshipped  to  foreign  ports  are 
covered  by  a  single  policy  of  insurance  which  begins  from  the 
time  of  shipment  in  the  West  and  continues  to  the  time  the 
goods  are  delivered  in  foreign  lands.  This,  in  the  case  of 
marine  insurance,  not  only  makes  the  business  national  but 
international,  and,  as  such,  peculiarly  a  subject  of  Federal 
supervision  and  regulation.  Another  element  which  enters 
into  the  problem  and  which  has  often  been  ignored  is  the 
fact  that  our  population  is  largely  of  a  migratory  character, 
and  people  insured  in  one  State,  by  removing  to  other  States, 
while  continuing  their  contracts  under  existing  conditions, 
become  subject  to  different  laws,  and  often  to  a  radically 
different  interpretation  of  the  law. 

Insurance  is  not  a  subject  which  should  be  exposed  to  the 
fluctuations  of  public  opinion  as  expressed  in  the  form  of 
frequent  statutory  enactments  under  our  system  of  repre- 
sentative government  in  some  fifty  different  States  and  Terri- 
tories. In  conformity  with  the  usage  of  other  commercial 
nations,  it  should  be  exclusively  under  the  regulation  of  the 
State  of  incorporation  and  the  Federal  government.  Such 
regulation,  I  am  convinced,  will  be  effective  and  economical 
and  produce  a  far  better  state  of  affairs  than  exists  at  the 
present  time.  I  have  it  on  good  authority  that  during  the 
last  five  years  not  less  than  three  thousand  bills  were  intro- 
duced into  the  different  State  legislatures,  more  or  less  affect- 
ing the  interests  of  insurance  companies.  This  amount 
of  legislation,  new  and  amendatory,  is  uncalled  for,  and 
is  demanded  neither  by  the  growth  of  the  business  nor 
by  the  contractual  relations  between  the  companies  and 
their  policyholders.  In  other  countries,  such  as  Germany 
and  Switzerland,  where  an  earlier  federation  of  states,  or 
cantons,  had  produced  conditions  similar  to  those  existing 

206 


The  Commercial  Aspects  of  Insurance 

in  this  country  to-day,  in  the  course  of  time  insurance  has 
become  the  subject  of  exclusive  Federal  regulation. 

My  views  and  convictions  in  this  matter  are  not  wholly 
the  result  of  my  personal  experience  in  the  business  of 
insurance.  To  satisfy  myself  fully  as  to  whether  my  views 
were  sustained  by  those  whose  business  experience  or  per- 
sonal interest  in  public  affairs  had  given  them  a  peculiar 
opportunity  to  judge  of  the  necessity  and  advantage  of  Fed- 
eral supervision  of  insurance,  I  addressed  a  carefully  framed 
circular  to  some  eight  thousand  associations  and  individuals, 
throughout  the  United  States,  and  of  these  nearly  ninety  per 
cent,  favor  the  idea  and  heartily  endorse,  often  by  long 
letters,  the  effort  to  secure  Congressional  action  upon  this 
subject.* 

Among  others  to  whom  my  letter  of  inquiry  was  addressed 
were  some  seven  hundred  commercial  bodies  or  organizations, 
and  of  this  number  ninety-six  per  cent,  pronounced  them- 
selves in  favor  of  Federal  supervision.  In  many  instances 
deliberate  action  was  taken  upon  the  matter  and  a  formal 
expression  of  the  members  was  secured,  emphasizing  the 
wide-spread  interest  in  the  subject  and  the  deep  conviction 
that  Federal  action  upon  this  matter  would  be  desirable  and 
would  be  approved  by  the  public  generally.  Hence,  I  have 
fully  satisfied  myself  that  the  commercial  interests  as  repre- 
sented in  well-established  organizations  are  practically  a  unit 
in  favor  of  the  proposed  regulation  of  insurance  by  Congress. 
As  to  the  further  question,  whether  or  not  insurance  should 
properly  be  considered  an  element  or  instrumentality  of 
commerce,  eighty  per  cent,  of  the  commercial  bodies  to 
whom  the  circular  was  addressed  replied  in  the  affirmative. 
The  inquiry  was  also  addressed  to  a  large  number  of  the 
presidents  of  national  banks,  upon  the  theory  that,  these 
institutions  having  for  many  years  been  under  Federal  super- 
vision and  regulation,  their  officers  were  in  an  exceptional 

*  For  details  see  Appendix  A,  pp.  289-293. 

20J 


Life  Insurance  and  Other  Subjects 

position  to  express  an  opinion  as  to  whether  Federal  regula- 
tion of  insurance  would  be  desirable  or  not.  In  addition  it 
must  be  taken  into  consideration  that  these  banks,  in  a  gen- 
eral way,  are  interested  in  insurance  to  the  extent  that  many 
loans  upon  goods  in  transit  or  in  storage  require  the  addi- 
tional guarantee  of  a  certificate  of  insurance  before  the  loan 
will  be  granted  or  an  advance  made  by  the  bank.  Of  those 
making  answer  to  my  letter  of  inquiry,  ninety-one  per  cent, 
of  the  bank  presidents  were  in  favor  of  Federal  regulation 
of  insurance,  while  seventy-two  per  cent,  held  insurance  to 
be  commerce,  or  an  element  or  instrumentality  thereof. 

These  are  but  a  few  illustrations  of  the  expression  of  pub- 
lic opinion  which  I  have  collected  to  satisfy  myself  and  others 
that  the  movement  for  Federal  regulation  of  insurance  is  a 
national  one  and  that  it  has  the  hearty  and  emphatic  support 
of  the  interests  specifically  affected,  as  well  as  of  the  large  mass 
of  our  population  generally.  I  may  add  that  of  a  large  num- 
ber of  prominent  policyholders,  holding  life  insurance  poli- 
cies of  not  less  than  $25,000,  and  in  the  aggregate  approxi- 
mately $75,000,000  of  insurance,  and  being  therefore  vitally 
and  financially  interested  in  all  that  pertains  to  the  solvency 
and  economical  management  of  the  companies,  ninety-two 
per  cent,  expressed  themselves  in  favor  of  Federal  regulation 
of  insurance,  while  eighty  per  cent,  of  this  class  held  insur- 
ance to  be  commerce  or  an  instrumentality  thereof.  I  am, 
therefore,  not  aware  of  any  measure  which  may  come  before 
Congress  for  serious  and  earnest  consideration  which  has  so 
fully  and  heartily  the  endorsement  of  intelligent  public  opin- 
ion. And  I  do  not  hesitate  to  say  that  it  is  my  belief  that 
if  the  proposition  could  be  submitted  to  a  popular  vote,  or 
if  an  expression  of  opinion  could  be  secured  from  the  vast 
mass  of  policyholders  of  all  branches  of  insurance,  the  verdict 
would  be  practically  unanimous  in  favor  of  the  enactment 
of  a  Federal  law  regulating  interstate  insurance  transactions. 

Any  new  legislative   proposition   must,   as  a   matter  of 

208 


The  Commercial  Aspects  of  Insurance 

course,  be  framed  or  designed  to  stand  the  final  test  of  con- 
stitutionality when  interpreted  by  our  court  of  last  resort. 
Some  very  plausible  reasons  have  been  advanced  to  show 
that  the  proposed  Federal  regulation  of  interstate  insur- 
ance transactions  would  not  be  within  the  powers  granted 
by  the  Constitution,  and  in  particular  not  within  the  mean- 
ing of  the  commerce  clause  of  that  instrument.  Objections 
of  this  kind  are  properly  entitled  to  serious  consideration, 
but  it  is  well  to  keep  in  mind  that  similar  objections  have 
been  raised  against  most  of  the  great  measures  which  have 
come  before  Congress  for  consideration  at  nearly  every  ses- 
sion from  the  very  foundation  of  our  government.  Nor 
could  it  well  be  otherwise.  The  Constitution  is  not  a  legal 
code,  but  a  written  instrument,  general  in  its  terms,  every 
provision  of  which  is,  and  will  ever  remain,  subject  to  inter- 
pretation by  the  Supreme  Court  as  cases  or  conditions  arise 
which  may  make  this  necessary.  The  Constitution  is  in- 
tended to  endure  and  meet  our  needs  for  all  time,  and,  from 
Marshall  down,  the  interpretation  of  the  different  clauses 
has,  as  a  rule,  been  in  a  spirit  of  broad  construction,  to  give 
to  this  government  the  character  of  a  nation  and  not  merely 
that  of  a  federation  of  States. 

Constitutional  objections,  as  I  have  said,  have  been  raised 
against  most  of  the  measures  and  legislative  acts  which  have 
received  consideration  by  Congress  and  to  which  we  owe  our 
growth  and  development  as  a  nation.  Washington  had 
hardly  issued  his  famous  declaration  of  neutrality,  which, 
without  doubt,  saved  this  country  from  a  disastrous  war, 
when  bitter  accusations  were  made  against  him  of  an  un- 
warranted exercise  of  his  powers.  Washington  was  opposed 
by  Madison  but  sustained  by  Marshall,  and  the  verdict  of 
history  is  read  in  the  language  of  Justice  Story,*  that  "Proba- 
bly at  the  present  day  (1835)  not  a  single  statesman  can  be 
found  of  any  influence,  in  any  party,  who  does  not  deem 

*  John  Marshall,  Life,  Character  and  Judicial  Services,  by  John  F.  Dillon,  vol.  Ill,  pp.  350-353. 

20Q 


Life  Insurance  and  Other  Subjects 

the  measure  to  have  been  as  well  founded  in  constitutional 
law  as  in  sound  policy."  Jay  had  no  sooner  completed  his 
treaty  with  England  than  the  point  was  raised,  and  sus- 
tained by  apparently  irrefutable  arguments,  that  the  treaty 
was  unconstitutional  and  that  Congress  did  not  have  the 
power  to  ratify  it.  In  fact,  it  was  maintained  that  "The 
negotiation  of  a  commercial  treaty  by  the  Executive  was 
an  infringement  of  the  Constitution  and  a  violation  of  the 
power  given  to  Congress  to  regulate  commerce."  In  all 
the  many  and  perplexing  questions  which  have  agitated  our 
nation  from  time  to  time,  the  point  of  constitutionality  in 
legislative  enactments  has  invariably  been  brought  forward. 
This  is  true,  for  illustration,  of  the  controversy  relating  to 
the  assumption  of  State  debts,  the  several  embargo  acts, 
the  enforcement  act,  the  bank  charter,  the  militia  question, 
territorial  extension  and  the  creation  of  new  States,  the  con- 
scription scheme,  and  many  other  controversies  and  disputes. 
The  point  of  constitutionality  was  raised  in  the  Missouri 
compromise,  and  was  not  settled  by  a  decree  of  the  Supreme 
Court  until  thirty-five  years  later.  The  great  question  of 
internal  improvements,  than  which,  perhaps,  not  one  dur- 
ing the  earlier  years  of  our  national  existence  was  of  greater 
importance,  was  bitterly  fought  upon  the  ground  of  constitu- 
tionality, and  had  the  narrow  spirit  of  constitutional  con- 
struction been  successful  we  should  be  very  far  from  having 
attained  our  present  imposing  position.  Bitter,  again,  was 
the  constitutional  struggle  over  the  tariff"  laws,  which,  it 
was  held,  should  be  passed  solely  for  the  purpose  of  raising 
revenue  and  not  for  the  purpose  of  protection,  but,  fortu- 
nately for  the  best  interests  of  the  people  and  the  nation, 
the  narrow  spirit  was  set  aside  by  the  broad  principles  of 
a  liberal  construction  of  the  Constitution  as  an  instrument 
designed  to  meet  our  needs  as  a  nation  and  not  merely  as 
a  federation  of  States. 

Similar  constitutional  objections  have  been  raised  against 

210 


The  Commercial  Aspects  of  Insurance 

the  enactment  of  a  Federal  insurance  law.  It  is  pointed 
out  that  there  have  been  a  number  of  decisions  of  the  Su- 
preme Court  to  the  effect  that  insurance  is  not  commerce, 
and  that,  therefore,  Congress  has  no  power  over  interstate 
insurance  transactions.  The  fact  is  overlooked,  or  not  fully 
considered,  that  the  subject  has  never  been  presented  to  the 
Court  upon  an  issue  raised  under  a  Federal  statute,  and  that 
the  cases  which  have  been  decided  have  only  an  indirect 
bearing  upon  the  point  here  in  view,  and  do  not  warrant  a 
negative  policy  of  action  on  the  part  of  Congress  any  more 
than  corresponding  objections  have  prevented  action  in  other 
cases.  The  Supreme  Court  itself  would  not  render  an  ad- 
vance opinion  upon  the  subject,  so  it  cannot  be  held  to  be 
the  duty  of  a  member  of  Congress  to  be  influenced  by  mere 
theoretical  speculations  of  lawyers  and  laymen. 

As  a  matter  of  fact,  it  is  a  well-established  principle  of 
the  judiciary  department  that  "Every  statute  is  considered 
valid  as  long  as  there  is  any  reasonable  interpretation  by 
which  it  may  be  held  so.  The  Legislature  is  presumed  to 
have  acted  within  its  powers,  and  only  the  strongest  proofs 
to  the  contrary  are  sufficient  to  nullify  its  act.  Congress 
must  wantonly  go  very  far  outside  the  plain  meaning  of  the 
Constitution  before  the  Court  will  interfere  to  prevent  the 
operation  of  the  law."  In  the  case  of  Fletcher  vs.  Peck  (6 
Cranch,  87),  Marshall  stated  the  preponderance  of  proof 
which  shall  be  necessary  to  justify  the  Court  in  ignoring  an 
act  of  the  Legislature.  He  said:  "The  question,  whether 
a  law  be  void  for  its  repugnancy  to  the  Constitution,  is  at 
all  times  a  question  of  delicacy,  which  ought  seldom,  if  ever, 
to  be  decided  in  the  affirmative  in  a  doubtful  case.  The 
Court,  when  impelled  by  duty  to  render  such  a  judgment, 
would  be  unworthy  of  its  station  could  it  be  unmindful  of 
the  solemn  obligations  which  that  station  implies.  But  it 
is  not  on  slight  implication  or  vague  conjecture  that  the  Legis- 
lature is  to  be  pronounced  to  have  transcended  its  powers,  and 

211 


Life  Insurance  and  Other  Subjects 

its  Acts  to  be  considered  as  void.  The  opposition  between 
the  Constitution  and  the  law  should  be  such  that  the  judge 
feels  a  clear  and  strong  conviction  of  their  incompatibility 
with  each  other." 

Now,  I  would  be  unmindful  of  my  own  duty  in  this  re- 
spect and  my  own  sacred  oath  of  office  as  a  Senator  of  the 
United  States  to  support  the  Constitution,  if  I  had  not 
made  every  reasonable  effort  to  convince  myself  by  the 
necessary  evidence  that  the  facts  in  the  case,  the  indisput- 
able facts  gathered  from  every  trustworthy  source,  sustain 
the  theory  of  this  proposition  and  emphasize  its  practical 
importance  as  a  national  necessity.  It  is  also  well  to 
keep  in  mind  that  the  Supreme  Court  itself  has  very 
seldom  been  a  unit  in  decisions  upon  the  constitutional 
interpretation  of  the  commerce  clause,  and  the  legislative 
department  could  hardly  be  expected  to  be  unanimous  upon 
a  question  upon  which  the  Court  itself  has  as  a  rule  been 
divided.*  In  nearly  every  case  which  has  been  before  the 
Court  regarding  the  power  of  Congress  over  interstate  and 
foreign  commerce  at  least  one,  and  in  many  cases  several 
dissenting  opinions  have  been  filed.  The  Constitution  gives 
the  Federal  government  specific  power  over  post-offices  and 
post-roads,  over  patents  and  copyrights,  over  bankruptcy, 
and  over  commerce  in  the  broadest  possible  sense  of  the 
word.  By  implication,  and  not  by  specific  enumeration, 
Congress  has  established  a  system  of  lighthouses  and  erected 
custom-houses,  has  authorized  a  coast  survey  and  a  survey 
of  rivers  and  harbors,  has  created  a  bank  and  developed  our 
national  banking  system,  and,  as  confirmed  by  decisions  of 
the  Supreme  Court  under  the  commerce  clause,  Congress  has 
power  and  control  over  railways,  telegraphs,  express  com- 
panies, and  even  over  lottery  tickets. 

The  Constitution  has  met  our  needs  in  the  past,  and  will, 
without  question,  meet  our  needs  in  the  future.     Interpreted, 

*  James  S.  Rogers,  on  the  Exclusiveness  of  the  Power  of  Congress  over  Interstate  and  Foreign  Com- 
merce, in  the  American  Law  Register,  September  and  October,  1905. 

212 


The  Commercial  Aspects  of  Insurance 

as  it  has  been,  in  a  broad  and  liberal  spirit,  there  is 
every  reason  to  hope  that  the  plain  necessities  of  the 
situation  will  justify  a  favorable  opinion  if  the  case  of 
insurance  should  come  before  the  Supreme  Court.  That 
insurance  in  everyday  language  is  an  element  and  instru- 
mentality of  commerce  is  established  by  every  treatise 
on  commercial  law  and  usage,  by  every  dictionary  of 
commerce,  and  by  the  consensus  of  public  opinion  which 
I  have  taken  pains  to  secure  upon  this  point.  Insurance 
is  to-day,  as  it  has  been  for  centuries,  a  part  of  the 
law  merchant  of  the  principal  commercial  nations,  and 
in  every  important  country  except  ours  insurance  is  the 
subject  of  regulation  by  the  national  or  supreme  govern- 
ment. I  rely  with  confidence  upon  the  theory  of  broad 
constitutional  construction  in  this  as  in  all  matters  of 
doubtful  constitutionality  which  vitally  affect  our  national 
welfare.* 

In  the  admirable  and  never-to-be-forgotten  words  of 
Chief  Justice  Marshall:  "To  say  that  the  intention  of  the 
instrument  must  prevail;  that  this  intention  must  be  collected 
from  its  words;  that  its  words  are  to  be  understood  in  the  sense 
in  which  they  are  generally  used  by  those  for  whom  the  in- 
strument was  intended;  that  its  provisions  are  neither  to  be 
restricted  into  insignificance  nor  extended  to  objects  not  com- 
prehended in  them  nor  contemplated  by  its  framers,  is  to 
repeat  what  has  already  been  said  more  at  large  and  is  all 
that  can  be  necessary."  And  in  passing  upon  the  constitu- 
tionality of  the  law  creating  a  United  States  bank,  Marshall 
gave  utterance  to  words  which  have  been  so  often  repeated 
that  they  have  become  an  axiom  in  our  constitutional  his- 
tory, namely:  "Let  the  end  be  legitimate,  let  it  be  within 
the  scope  of  the  Constitution,  and  all  means  which  are  appro- 
priate, which  are  plainly  adapted  to  that  end,  which  are  not 
prohibited,  but  consistent  with  the  letter  and  spirit  of  the 

*  Lex  Mercatoria  Rediviva,  or.  The  Merchant's  Directory,  by  Wyndham  Beawes,  London,  1752; 
article,  "insurance,"  p.  261. 

213 


Life  Insurance  and  Other  Subjects 

Constitution,  are  constitutional."*  When  we  consider  the 
enormous  extent  of  insurance,  how  it  affects  every  commercial 
and  private  interest,  how  it  enters  every  home  from  one  end 
of  the  land  to  the  other,  how  it  sustains  individual  effort, 
enhances  individual  credit,  and  provides  security  against 
possible  contingencies  not  to  be  guarded  against  by  any 
other  means  yet  devised,  I  question  if  the  ingenuity  of  man 
could  invent  or  design  another  method  so  completely  within 
the  spirit  of  our  nationality  and  an  interest  of  such  supreme 
importance  to  the  people  of  this  land. 

A  Federal  insurance  law  will  not  deprive  the  States  of  any 
rights  specifically  reserved  to  them  under  the  tenth  amend- 
ment. The  States,  under  the  bill  introduced  by  me,  will 
retain  all  the  rights  and  powers  over  their  own  corporations 
which  constitutionally  belong  to  them,  but  the  bill  will  put 
an  end  to  the  multiform  system  of  State  supervision  and  regu- 
lation over  insurance  corporations,  which  has  no  justification 
in  any  sound  theory  of  constitutional  rights  or  in  any  com- 
mon-sense conception  of  State  duty.  The  bill  will  put  an 
end  to  interstate  chaos  and  terminate  an  intolerable  condi- 
tion of  affairs  jeopardizing  the  interests  and  at  times  the  very 
existence  of  companies  transacting  interstate  business.  The 
bill  will  place  insurance  companies  upon  a  national  basis 
and  give  to  the  business  a  national  character.  The  bill  will 
bring  insurance  companies  engaged  in  interstate  business 
under  the  regulation  of  the  Federal  government,  and  provide 
a  system  of  supervision  and  examination,  thorough,  exacting 
and  complete.  The  bill  will  increase  the  value  of  every 
form  of  insurance,  materially  enhance  the  security  of  the 
policyholders,  and  broaden  the  field  of  business  operations 
to  an  extent  impossible  under  the  present  system  of  super- 
vision and  control  by  some  fifty  different  States  and  Terri- 
tories. The  States  will  continue  to  supervise  insurance 
corporations  of  their  own  creation,  but  they  will  be  deprived 

*  Marshall's  Complete  Constitutional  Decisions,  annotated  by  John  M.  Dillon;  Chicago,  1903. 

214 


The  Commercial  Aspects  of  Insurance 

of  power  to  supervise  corporations  of  other  States  and  to 
legislate  regarding  them,  chiefly  for  the  purpose  of  raising 
revenue  or  of  harassing  the  companies  by  vexatious  stat- 
utory requirements.  It  is  not  a  theory,  but  a  condition, 
which  confronts  the  companies  and  their  policyholders, 
who  in  their  aggregate  capacity  represent  the  nation  and 
not  individual  States.  The  policyholder  is  primarily  and 
chiefly  interested  in  the  security  and  value  of  his  contract, 
in  the  rate  of  premium  which  he  pays,  and  in  the  safe 
and  economical  administration  of  the  company  with  which 
he  insures.  It  is  not  a  question  with  him  whether  the  com- 
pany is  located  in  the  particular  State  in  which  he  lives,  or 
in  some  other  State.  As  a  life  insurance  policyholder  living 
to-day  in  one  State,  he  may  to-morrow  live  in  another,  but 
his  contract  of  insurance  goes  with  him,  and  protects  and 
sustains  him  in  the  event  of  calamity  or  loss.  It  is  not  a 
theory  that  this  business  is  national  in  extent  and  character, 
but  an  incontrovertible  fact  readily  within  the  comprehension 
of  any  one  who  will  carefully  consider  the  vast  extent  of  the 
business  operations  and  the  true  character  of  insurance 
transactions.  It  is  upon  this  ground  that  the  advocates  of 
Federal  supervision  rest  their  arguments  and  anticipate  a 
favorable  ruling  from  the  Supreme  Court  in  the  event  of  the 
constitutionality  of  a  law  to  this  effect  being  brought  to  a  test. 
This  great  interest  is  entitled  to  recognition  by  the  Federal 
government.  It  needs  the  government's  prudent,  consistent 
and  effective  supervision.  It  is  not  confined  in  its  operations 
even  to  the  limits  permitted  to  our  flag.  It  is  inseparably 
interwoven  with  our  national  prosperity  on  land  and  sea. 
Until  this  question  is  disposed  of  wisely  and  permanently  it 
is  a  matter  that  will  not  be  laid  at  rest. 


2I5 


Chapter    XI 


THE  AMERICAN  TYPE 

OF 

ISTHMIAN   CANAL 


SPEECH    IN 

THE    SENATE    OF    THE    UNITED    STATES 

JUNE   14,  1906 


THE     AMERICAN     TYPE     OF 
ISTHMIAN    CANAL 

"It  is  a  subject  upon  which  opinions  will  differ  and  upon  which  honest  con- 
victions may  be  widely  at  variance,  but  in  a  question  of  such  surpassing  import- 
ance to  the  nation,  I,  for  one,  shall  side  with  those  who  take  the  American  point 
of  view,  place  their  reliance  upon  American  experience,  and  show  their  faith  in 
American  engineers." 

The  Senate  having  under  consideration  the  bill  (S.  6191)  to  provide  for  the 
construction  of  a  sea-level  canal  connecting  the  waters  of  the  Atlantic  and  Pacific 
oceans,  and  the  method  of  construction — 

Mr.  Dryden  said: 

[r.  President:  the  Panama  Canal  problem 
has  reached  a  stage  where  a  decision  should 
be  made  to  fix  permanently  the  type  of  the 
waterway,  whether  it  shall  be  a  sea-level  or  a 
lock  canal.  An  immense  amount  of  evidence 
on  the  subject  has  in  the  past  and  during 
recent  years  been  presented  to  Congress. 
An  overwhelming  amount  of  expert  opinion  has  been  col- 
lected, and  an  International  Board  of  Consulting  Engineers 
has  made  a  final  report  to  the  President,  in  which  experts 
of  the  highest  standing  divide  upon  the  question.  The 
Senate  Committee  on  Interoceanic  Canals  has  likewise 
divided.  It  is  an  issue  of  transcendent  importance,  involv- 
ing the  expenditure  of  an  enormous  sum  of  money,  and 
political  and  commercial  consequences  of  the  greatest 
magnitude,  not  only  to  the  American  people,  but  to  the  world 
at  large. 

The  report  of  the  International  Board  has  been  printed 
and  placed  before  Congress.  A  critical  discussion  of  the 
facts  and  opinion  presented  by  this  Board,  all  more  or  less 
of  a  technical  and  involved  nature,  would  unduly  impose 
upon  the  time  of  the  Senate  at  this  late  day  of  the  session. 
In  addition,  there  is  the  testimony  of  witnesses  called  before 
the  Senate  committee,  which  has  also  been  printed  in  three 
large  volumes,  exceeding  3,000  pages  of  printed  matter.     To 

2ig 


Life  Insurance  and  Other  Subjects 

properly  separate  the  evidence  for  and  against  one  type  of 
canal  or  the  other,  to  argue  upon  the  facts,  which  present 
the  greatest  conflict  of  engineering  opinion  of  modern  times, 
would  be  a  mere  waste  of  effort  and  time,  since  the  evidence 
and  opinions  are  as  far  apart  and  as  irreconcilable  as  the  final 
conclusions  themselves.  It  is,  therefore,  rather  a  question 
which  the  practical  experience  and  judgment  of  members 
of  Congress  must  decide,  and  I  have  entire  confidence  that 
the  will  of  the  nation,  as  expressed  in  its  final  mandate,  will 
be  carried  into  successful  execution,  whether  that  mandate 
be  for  lock  canal  or  sea-level  waterway. 

The  Panama  Canal  presents  at  once  the  most  interesting 
and  the  most  stupendous  project  of  mankind  to  overcome 
by  human  ingenuity  "  what  Nature  herself  seems  to  have 
attempted,  but  in  vain."  From  the  time  when  the  first 
Spanish  navigators  extended  their  explorations  into  every 
bay  and  inlet  of  the  Central  American  isthmus,  to  discover, 
if  possible,  a  short  route  to  the  Indies,  or  "  from  Cadiz  to 
Cathay,"  the  human  mind  has  not  been  willing  to  rest  con- 
tent and  accept  as  insurmountable  the  natural  obstacles  on 
the  Isthmus  which  prevent  uninterrupted  communication 
between  the  Atlantic  and  the  Pacific.  Excepting,  possibly, 
Arctic  explorations,  in  all  the  romantic  history  of  ancient 
and  modern  commerce,  in  all  the  annals  of  the  early  navi- 
gators and  explorers,  there  is  no  chapter  that  equals  in  in- 
terest the  never  ceasing  efforts  to  make  the  Central  American 
isthmus  a  natural  highway  for  the  world's  commerce — a 
direct  route  of  trade  and  transportation  from  the  uttermost 
East  to  the  uttermost  West. 

As  early  as  1536  Charles  V  ordered  an  exploration  of  the 
Chagres  River  to  learn  whether  a  ship  canal  could  not  be 
substituted  for  an  existing  wagon  road,  and  Philip  II,  in 
1 56 1,  had  a  similar  survey  made  in  Nicaragua  for  the  same 
purpose.  From  that  day  to  this  the  greatest  minds  in  com- 
merce and  engineering  have  given    their  attention   to   the 

220 


The  American  Type  of  Isthmian  Canal 

problem  of  an  interoceanic  waterway;  every  conceivable  plan 
has  been  considered,  every  possible  road  has  been  explored, 
and  every  mile  of  land  and  sea  has  been  gone  over  to  find 
the  best  and  most  practical  solution  of  the  problem. 

The  history  of  these  early  attempts  is  most  interesting, 
but  it  is  no  longer  of  practical  value,  for  it  has  no  direct 
bearing  upon  present-day  problems.  Most  of  the  efforts 
were  wasted,  and  many  of  them  were  ill  advised,  but  the 
present  can  profitably  consider  the  more  important  lessons 
of  the  past.  It  was  written  in  the  book  of  fate  that  this 
enterprise,  the  most  important  in  the  world  of  commerce  and 
navigation,  should  be  American  in  its  ending  as  it  had  been 
in  its  practical  beginning.  From  the  day  when  the  first 
train  of  cars  crossed  the  Isthmus  from  Panama  to  Aspin- 
wall,  to  facilitate  the  transportation  of  passengers  and  freight 
across  the  narrow  belt  of  land  connecting  the  northern  and 
and  southern  continents,  the  imperative  necessity  of  a  ship 
canal  was  made  apparent.  Just  as  that  railway  followed 
the  earlier  wagon  roads  of  the  Spanish  adventurers,  so  a  ship 
canal  will  naturally  succeed  or  supplement  the  railway. 

Natural  conditions  on  the  Isthmus  materially  enhance 
the  physical  difficulties  to  be  overcome  in  canal  construc- 
tion. Even  the  precise  locality  or  section  best  adapted  to 
the  purpose  has  for  many  years  been  a  question  of  serious 
doubt.  The  Isthmus  of  Tehuantepec,  the  Nicaraguan 
route,  the  utilizing  of  a  lake  of  large  extent,  and  finally  the 
narrow  band  of  land  and  mountain  chain  at  Panama,  each 
offers  distinct  advantages  peculiar  to  itself,  with  correspond- 
ing disadvantages  or  local  difficulties  not  met  with  in  the 
others.  Many  other  projects  have  been  advanced;  in  all, 
at  least  some  twenty  distinct  routes  have  been  laid  out  by 
scientific  surveys,  but  the  most  eminent  American  engineer- 
ing talent,  considering  impartially  the  natural  advantages 
and  local  obstacles  of  each,  finally,  in  1840,  decided  upon 
the    isthmus    between    the    Bay    of   Panama    and    Limon 

221 


Life  Insurance  and  Other  Subjects 

Bay  as  the  most  feasible  for  the  building  of  the  railroad, 
and  some  fifty  years  later  for  the  building  of  the  Isth- 
mian Canal.  Every  further  study,  survey,  and  inquiry 
has  confirmed  the  wisdom  of  the  earlier  choice,  which  has 
been  adopted  as  the  best  and  as  the  permanent  plan  of 
the  American  government,  which  is  now  to  build  a  canal  at 
the  expense  of  the  nation,  but  for  the  ultimate  benefit  of 
all  mankind. 

The  Panama  railway  marked  the  beginning  of  a  new  era 
in  the  history  of  interoceanic  communication.  The  great 
practical  usefulness  of  the  road  soon  made  the  construction 
of  a  canal  a  commercial  necessity.  The  eyes  of  all  the  world 
were  upon  the  Isthmus,  but  no  nation  made  the  subject  a 
matter  of  more  profound  study  and  inquiry  than  the  United 
States.  One  surveying  party  followed  another,  and  every 
promising  project  received  careful  consideration.  The  con- 
flicting evidence,  the  great  engineering  difficulties,  the  natural 
obstacles,  and,  most  of  all,  the  Civil  War,  delayed  active 
efforts;  but  public  interest  was  maintained  and  the  general 
public  continued  to  view  the  project  with  favor  and  to 
demand  an  American  canal. 

During  the  seventies  a  French  commission  made  surveys 
and  investigations  on  the  Isthmus  which  terminated  in  the 
efforts  of  De  Lesseps,  who  undertook  to  construct  a  canal, 
and,  in  1879,  called  an  international  scientific  congress  to  con- 
sider the  project  in  all  its  aspects  and  determine  upon  a  practi- 
cal solution.  The  United  States  was  invited  to  be  represented 
by  two  official  delegates,  and  accordingly  President  Hayes 
appointed  Admiral  Ammen  and  A.  C.  Menocal,  of  the  United 
States  Navy,  both  of  whom  had  been  connected  with  surveys 
and  explorations  on  the  Isthmus.  Mr.  Menocal  presented 
his  plan  for  a  canal  by  way  of  Nicaragua,  but  it  was  evident 
that  the  Wyse  project,  of  a  canal  by  way  of  the  Isthmus  of 
Panama,  had  the  majority  in  its  favor,  and  the  only  question 
to  determine  was  whether  the  canal  to  be  constructed  should 


222 


The  American  Type  of  Isthmian  Canal 

be  a  sea-level  or  a  lock  canal.  The  American  delegates  were 
convinced,  in  the  light  of  their  knowledge  and  experience, 
that  a  sea-level  canal  would  be  impracticable,  if  not  impos- 
sible. In  this  they  were  seconded  by  Sir  John  Hawkshaw, 
a  man  thoroughly  familiar  with  canal  problems,  and  who 
exposed  the  hopelessness  of  an  attempt  to  make  a  sea-level 
ship  canal,  pointing  out  that  there  would  be  a  cataract  of 
the  Chagres  River  at  Matachin  of  42  feet,  which  in  periods 
of  floods  would  be  78  feet  high,  and  a  body  of  water  that 
would  be  36  feet  deep,  with  a  width  of  1,500  feet. 

Opposition  to  the  sea-level  project  proved  of  no  avail. 
The  facts  were  ignored  or  treated  with  indifference  by 
the  French,  who  were  determined  upon  a  canal  at  Panama 
and  at  sea  level,  resting  their  conclusions  upon  the  success  at 
Suez,  with  which  enterprise  many  of  those  present  at  the  con- 
gress, in  addition  to  De  Lesseps,  had  been  connected.  But 
the  problems  and  conditions  to  be  met  on  the  Isthmus  of 
Panama  were  decidedly  different  from  those  at  Suez,  and 
subsequent  experience  proved  the  serious  error  of  the  sea- 
level  plan  as  finally  adopted.  The  congress  included  a  large 
assemblage  of  non-professional  men,  and  of  the  French  en- 
gineers present  only  one  or  two  had  ever  been  on  the 
Isthmus.  The  final  vote  was  seventy-five  in  favor  of  and 
eight  opposed  to  a  sea-level  canal.  Rear-admiral  Ammen 
said:  "I  abstained  from  voting  on  the  ground  that  only  able 
engineers  can  form  an  opinion  after  careful  study  of  what  is 
actually  possible  and  what  is  relatively  economical  in  the 
construction  of  a  ship  canal."  Of  those  in  favor  of  a  sea- 
level  canal  not  one  had  made  a  practical  and  exhaustive  study 
of  the  facts.  The  project  at  this  stage  was  in  a  state  of  hope- 
less confusion.  In  spite  of  these  obstacles,  De  Lesseps,  with 
undaunted  courage,  proceeded  to  organize  a  company  for  the 
construction  of  a  sea-level  canal. 

As  soon  as  possible  after  the  adjournment  of  the  scientific 
congress  of  1879  the  Panama  Canal  Company  was  organized, 

223 


Life  Insurance  and  Other  Subjects 

with  Ferdinand  De  Lesseps  as  president.  The  company  pur- 
chased the  Wyse  concession,  and  by  1880  sufficient  funds  had 
been  secured  to  proceed  with  the  preliminary  work.  The 
next  two  years  were  used  for  scientific  investigations,  surveys, 
etc.,  and  the  actual  work  commenced  in  1883.  The  plan 
adopted  was  for  a  sea-level  canal  having  a  depth  of  29.5  feet 
and  a  bottom  width  of  72  feet.  This  plan  in  outline  and  in- 
tent was  adhered  to  practically  to  the  cessation  of  operations 
in  1888. 

In  that  year  operations  on  the  Isthmus  came  to  an  end 
for  want  of  funds.  The  failure  of  the  company  proved  dis- 
astrous to  a  very  large  number  of  shareholders,  mostly 
French  peasants  of  small  means,  and  for  a  time  the  project 
of  interoceanic  communication  by  way  of  Panama  seemed 
hopeless.  The  experience,  however,  proved  clearly  the  utter 
impossibility  of  private  enterprise  carrying  forward  a  project 
of  such  magnitude  and  which  had  attained  a  stage  where 
large  additional  funds  were  needed  to  make  good  enormous 
losses,  due  to  errors  in  plans,  to  miscarriage  of  effort,  and, 
last  but  not  least,  to  fraud  on  a  stupendous  scale.  With 
admirable  courage,  however,  the  affairs  of  the  first  Panama 
Canal  Company  were  reorganized,  after  the  appointment  of 
a  receiver,  on  February  4,  1889.  A  scientific  commission 
of  inquiry  was  appointed  to  reinvestigate  the  entire  project 
and  report  upon  the  work  actually  accomplished  and  its 
value  in  future  operations.  The  commission,  made  up  of 
eminent  engineers,  sent  five  of  its  members  to  the  Isthmus  to 
study  the  technical  aspects  of  the  problem,  and  a  final  report 
was  rendered  on  May  5,  1890.  The  recommendation  of  the 
commission  was  for  the  construction  of  a  canal  with  locks, 
the  abandonment  of  the  sea-level  idea,  and  for  a  further  and 
still  more  thorough  inquiry  into  the  facts,  upon  the  ground 
that  the  accumulated  data  were  "far  from  possessing 
the  precision  essential  to  a  definite  project."  This  took 
the   project  of  canal    construction    out   of  the    domain  of 

224. 


The  American  Type  of  Isthmian  Canal 

preconceived  ideas  based  upon  guesswork  into  the  sub- 
stantial field  of  a  scientific  undertaking  for  commercial  pur- 
poses. The  receiver  at  once  commenced  to  reorganize  the 
affairs  of  the  company,  and  accordingly,  on  October  21,  1894, 
the  new  Panama  Canal  Company  came  into  existence  under 
the  general  laws  of  France.  The  charter  of  the  new  com- 
pany provided  for  the  appointment  of  a  technical  committee 
to  formulate  a  final  project  for  the  completion  of  the  canal. 
This  committee  was  organized  in  February,  1896,  and 
reached  a  unanimous  conclusion  on  November  16,  1898, 
embodied  in  an  elaborate  report,  which  is  probably  the  most 
authoritative  document  ever  presented  on  an  engineering 
subject.  The  recommendation  of  the  commission  was 
unanimously  in  favor  of  a  lock  canal.* 

The  subsequent  history  of  the  De  Lesseps  project  and  the 
American  efFort  for  a  practicable  route  across  the  Isthmus 
are  still  fresh  in  our  minds  and  need  not  be  restated.  The 
Spanish-American  war  and  the  voyage  of  the  Oregon  by  way 
of  Cape  Horn,  more  than  any  other  causes,  combined  to  direct 
the  attention  of  the  American  people  to  conditions  on  the 
Isthmus,  and  led  to  the  public  demand  that  by  one  route  or 
another  an  American  waterway  be  constructed  within  a  rea- 
sonable period  of  time  and  at  a  reasonable  cost.  It  will  serve 
no  practical  purpose  to  recite  the  subsequent  facts  and  the  chain 
of  events  which  led  to  the  passage  of  the  act  of  March  3, 1899, 
which  authorized  the  President  to  have  a  full  and  complete 
investigation  made  of  the  entire  subject  of  Isthmian  canals. 

A  million  dollars  was  appropriated  for  the  expenses  of  a 
commission,  and  in  pursuance  of  the  provisions  of  the  act  the 
President  appointed  a  commission  consisting  of  Rear-admiral 
Walker,  United  States  Navy,  president,  and  nine  members 
eminent  in  their  respective  professions  as  experts  or  engineers. 
A  report  was  rendered  under  the  date  of  November  30,  1901, 
in   which    the    cost    of   constructing    a    canal    by    way    of 

*  Report  of  the  New  Panama  Canal  Company  of  France;  Senate  Document  188,  56th  Congress,  1st 
session,  February  20,  1900. 

225 


Life  Insurance  and  Other  Subjects 

Nicaragua  was  estimated  at  $189,864,062  and  by  way  of 
Panama  at  $184,233,358,  including  in  the  last  estimate 
$40,000,000  for  the  estimated  value  of  the  rights  and  property 
of  the  New  Panama  Canal  Company.  The  company,  however, 
held  its  property  at  a  much  higher  value,  or  some  $109,000,- 
000,  which  the  Commission  considered  exorbitant,  and  thus 
the  only  alternative  was  to  recommend  the  construction  of  a 
canal  by  way  of  the  Nicaraguan  route.  Convinced,  how- 
ever, that  the  American  people  were  in  earnest,  the  New 
Panama  Company  expressed  a  willingness  to  reconsider  the 
matter,  and  finally  agreed  to  the  purchase  price  fixed  by  the 
Isthmian  Commission. 

By  the  Spooner  act,  passed  June  28,  1902,  Congress  au- 
thorized the  President  to  purchase  the  property  of  the  New 
Panama  Canal  Company  for  a  price  not  exceeding  $40,000,- 
000,  the  title  to  the  property  having  been  fully  investigated  and 
found  valid.  The  Isthmian  Commission,  therefore,  recom- 
mended to  Congress  the  purchase  of  the  property,  but  the 
majority  of  the  Senate  Committee  on  Interoceanic  Canals 
disagreed,  and  it  is  only  to  the  courage  and  rare  ability  of  the 
late  Senator  Hanna  and  his  associates,  as  minority  members 
of  the  committee,  that  the  nation  owes  the  abandonment  of 
the  Nicaraguan  project,  the  acquirement  of  the  Panama 
Canal  rights  at  a  reasonable  price  and  the  making  of  the 
project  a  national  enterprise. 

The  report  of  the  minority  members  of  the  Senate  com- 
mittee was  made  under  date  of  May  31,  1902.  It  is,  without 
question,  a  most  able  and  comprehensive  dissertation  upon 
the  subject,  and  forms  a  most  valuable  addition  to  the  truly 
voluminous  literature  of  Isthmian  canal  construction.  The 
report  was  signed  by  Senators  Hanna,  Pritchard,  Millard,  and 
Kittredge.  "We  consider,"  said  the  committee,  "that  the 
Panama  route  is  the  best  route  for  an  Isthmian  canal  to  be 
owned,  constructed,  controlled,  and  protected  by  the  United 
States."     It  was  a  bold  challenge  of  the  conclusions  of  the 

226 


The  American  Type  of  Isthmian  Canal 

majority  members  of  the  committee,  but  in  entire  harmony 
with  and  in  strict  conformity  to  the  views  and  final  con- 
clusions of  the  Isthmian  Commission.  The  minority  report 
was  accepted  by  the  Congress  and  a  canal  at  Panama  became 
an  American  enterprise  for  the  benefit  of  the  American  people 
and  the  world  at  large. 

Such,  in  broad  outline,  is  the  present  status  of  the  Panama 
Canal.  A  grave  question  presents  itself  at  this  time,  which 
demands  to  be  disposed  of  by  Congress,  and  to  which  all 
others  are  subservient.  Shall  the  waterway  be  a  sea-level  or 
a  lock  canal  ?  It  is  a  question  of  tremendous  importance — a 
question  of  choice  equally  as  important  as  the  one  of  the  route 
itself.  A  choice  must  be  made,  and  it  must  be  made  soon. 
All  the  subsidiary  work,  all  the  related  enterprises,  depend 
upon  the  fundamental  difference  in  type.  Opinions  differ 
as  widely  to-day  as  they  did  at  the  time  when  the  project 
was  first  considered  by  the  international  committee  in  1879. 
Engineers  of  the  highest  standing  at  home  and  abroad  have 
expressed  themselves  for  or  against  one  type  or  the  other,  but 
it  is  a  question  upon  which  no  complete  agreement  is  possible. 
In  theory  a  sea-level  canal  has  unquestionable  advantages, 
but,  practically,  the  elements  of  cost  and  time  necessary  for 
the  construction  preclude  to-day,  as  they  did  in  1894,  when 
the  New  Canal  Company  recommenced  active  operations, 
the  building  of  a  sea-level  canal.  It  is  not  a  question  of 
the  ideally  most  desirable,  but  of  the  practically  most  expedient, 
that  confronts  the  American  people  and  demands  solution. 

The  New  Panama  Canal  Company  had  approved  the 
lock  plan,  which  placed  the  minimum  elevation  of  the  sum- 
mit level  at  97.5  feet  above  the  sea  and  the  maximum  level 
at  102.5  feet  above  the  same  datum.  In  the  words  of  Prof. 
William  H.  Burr: 

It  provided  for  a  depth  of  29.5  feet  of  water  and  a  bottom  width  of  canal 
prism  of  about  98  feet,  except  at  special  places,  where  this  width  was  increased. 
A  dam  was  to  be  built  near  Bohio,  which  would  thus  form  an  artificial  lake, 

22? 


Life  Insurance  and  Other  Subjects 

with  its  surface  varying  from  52.5  to  65.6  feet  above  the  sea.  The  location  of 
this  line  was  practically  the  same  as  that  of  the  old  company.  The  available 
length  of  each  lock  chamber  was  738  feet,  while  the  available  width  was  82  feet, 
the  depth  in  the  clear  being  32  feet  10  inches.  The  lifts  were  to  vary  from  26  to 
33  feet.  It  was  estimated  that  the  cost  of  finishing  the  canal  on  this  plan  would 
be  $101,850,000,  exclusive  of  administration  and  financing. 

The  Isthmian  Commission  of  1899-1901  considered  the 
project,  re-examined  into  the  facts,  and  as  stated  by  Pro- 
fessor Burr — 

The  feasibility  of  a  sea-level  canal,  but  with  a  tidal  lock  at  the  Panama  end, 
was  carefully  considered  by  the  Commission,  and  an  approximate  estimate  of  the 
cost  of  completing  the  work  on  that  plan  was  made.  In  round  numbers  this 
estimated  cost  was  about  $250,000,000,  and  the  time  required  to  complete  the  work 
would  probably  be  nearly  or  quite  tivice  that  needed  for  the  construction  of  a 
canal  nvith  locks.  The  Commission  therefore  adopted  a  project  for  the  canal 
locks.  Both  plans  and  estimates  were  carefully  developed  in  accordance  there- 
with. 

Professor  Burr,  now  in  favor  of  a  sea-level  canal,  then 
concurred  in  the  report  in  favor  of  a  lock  canal. 

Since  the  Panama  canal  became  the  property  of  the  na- 
tion a  vast  amount  of  necessary  and  preliminary  work  has 
been  done  preparatory  to  the  actual  construction  of  the 
canal.  A  complete  civil  government  of  the  Canal  Zone  has 
been  established,  an  army  of  experts  and  engineers  has  been 
organized,  the  work  of  sanitation  and  police  control  is  in 
excellent  hands,  and  the  Isthmus,  or,  more  properly  speaking, 
the  Canal  Zone,  is  to-day  in  a  better,  cleaner,  and  more 
healthful  condition  than  at  any  previous  time  in  its  history. 
A  considerable  amount  of  excavation  and  necessary  im- 
provements in  transportation  facilities  have  been  carried  to 
a  point  where  further  work  must  stop  until  the  Isthmian 
Commission  knows  the  final  plan  or  type  of  the  canal.  The 
reports  which  have  been  made  of  the  work  of  the  Com- 
mission during  its  two  years  of  actual  control  are  a  complete 
and  affirmative  answer  to  the  question  whether  what  has 
been  done  so  far  has  been  done  wisely  and  well,  and  the 
facts  and  evidence  prove  that  the  present  state  of  affairs  on 
the  Isthmus  is  in  all  respects  to  the  credit  of  the  nation. 

228 


The  American  Type  of  Isthmian  Canal 

Now,  it  is  evident  that  the  question  of  plan  or  type  of 
canal  is  largely  one  for  engineers  to  determine,  but  even  a 
layman  can  form  an  intelligent  opinion,  without  entering 
into  all  the  details  of  so  complex  a  problem  as  the  relative 
advantage  or  disadvantage  of  a  sea-level  versus  a  lock  canal. 
This  much,  however,  is  readily  apparent,  that  a  sea-level 
canal  will  cost  a  vast  amount  of  money  and  may  take  twice 
the  time  to  build,  while  it  will  not  necessarily  accommodate 
a  larger  traffic  or  ships  of  a  larger  size.  A  lock  canal  can  be 
built  which  will  meet  all  requirements;  it  can  be  built  deep 
enough  and  wide  enough  to  accommodate  the  largest  ves- 
sels afloat;  it  can  be  so  built  that  transit  across  the  Isthmus 
can  be  effected  in  a  reasonably  short  period  of  time — in  a 
word,  it  is  a  practical  project,  which  will  solve  every  pend- 
ing question  involved  in  the  construction  of  a  transisthmian 
canal  in  a  practical  way,  at  a  reasonable  cost,  and  within  a 
reasonable  period  of  time. 

To  determine  the  question  the  President  appointed  an 
International  Board  of  Consulting  Engineers.  The  Board 
included  in  its  membership  the  world's  foremost  men  in  en- 
gineering science,  and  the  report  is  without  question  a  most 
valuable  document.  The  President,  in  his  address  to  the 
members  of  the  Board  on  September  II,  1905,  outlined  his 
views  with  regard  to  the  desirability  of  a  sea-level  canal,  if 
such  a  one  could  be  constructed  at  a  reasonable  cost  within  a 
reasonable  time.     He  said — 

If  to  build  a  sea-level  canal  will  but  slightly  increase  the  risk  and  will  take 
but  little  longer  than  a  multilock  high-level  canal,  this,  of  course,  is  preferable. 
But  if  to  adopt  the  plan  of  a  sea-level  canal  means  to  incur  great  hazard  and  to 
incur  indefinite  delay,  then  it  is  not  preferable. 

The  problem  as  viewed  by  the  American  people  could 
not  be  more  concisely  stated.  Other  things  equal,  a  sea- 
level  canal,  no  doubt,  would  be  preferable;  but  it  remains  to 
be  shown  that  such  a  canal  would  in  all  essentials  provide 
safe,  cheap,  and  earlier  navigation  across  the  Isthmus  than 
a  lock  canal. 


22g 


Life  Insurance  and  Other  Subjects 

For,  as  the  President  further  said  on  the  same  occasion, 
there  are  two  essential  considerations:  First,  the  greatest 
possible  speed  of  construction;  second,  the  practical  cer- 
tainty that  the  proposed  plan  will  be  feasible;  that  it  can  be 
carried  out  with  the  minimum  risk;  and  in  conclusion  that — 

There  may  be  good  reason  why  the  delay  incident  to  the  adoption  of  a  plan 
for  an  ideal  canal  should  be  incurred  ;  vbut  if  there  is  not  then  I  hope  to  see  the 
canal  constructed  on  a  system  which  will  bring  to  the  nearest  possible  date  in  the 
future  the  time  when  it  is  practicable  to  take  the  first  ship  across  the  Isthmus — 
that  is,  which  will  in  the  shortest  time  possible  secure  a  Panama  waterway 
between  the  oceans  of  such  a  character  as  to  guarantee  permanent  and  ample 
communication  for  the  greatest  ships  of  our  Navy  and  for  the  largest  steamers  on 
either  the  Atlantic  or  the  Pacific.  The  delay  in  transit  of  the  vessels  owing  to 
additional  locks  would  be  of  small  consequence  when  compared  with  shortening 
the  time  for  the  construction  of  the  canal  or  diminishing  the  risks  in  the  con- 
struction. In  short,  I  desire  your  best  judgment  on  all  the  various  questions  to 
be  considered  in  choosing  among  the  various  plans  for  a  comparatively  high- 
level  multilock  canal,  for  a  lower-level  canal  with  fewer  locks,  and  for  a  sea-level 
canal.  Finally,  I  urge  upon  you  the  necessity  of  as  great  expedition  in  coming 
to  a  decision  as  is  compatible  with  thoroughness  in  considering  the  conditions. 

The  Board  organized  and  met  in  the  city  of  Washington 
on  September  I,  1905,  and  on  the  10th  of  January,  1906,  or 
about  four  months  later,  made  its  final  report  to  the  Presi- 
dent through  the  Secretary  of  War.  The  Board  divided 
upon  the  question  of  type  for  the  proposed  canal,  a  majority 
of  eight — five  foreign  engineers  and  three  American  engineers 
— being  in  favor  of  a  canal  at  sea-level,  while  a  minority  of 
five — all  American  engineers — favored  a  lock  canal  at  a  sum- 
mit level  of  85  feet.  The  two  propositions  require  separate 
consideration,  each  upon  its  own  merits,  before  a  final  opinion 
can  be  arrived  at  as  to  the  best  type  of  a  waterway  adapted 
to  our  needs  and  requirements  under  existing  conditions. 

Upon  a  question  so  involved  and  complex,  where  the  most 
eminent  engineers  divide  and  disagree,  a  layman  cannot  be 
expected  to  view  the  problem  otherwise  than  as  a  business 
proposition  which,  demanding  solution,  must  be  disposed  of 
by  a  strictly  impartial  examination  of  the  facts.  Weighed 
and  tested  by  practical  experience  in  other  fields  of  com- 
mercial enterprise,  it  is  probably  not  going  too  far  to  say,  as 

230 


The  American  Type  of  Isthmian  Canal 

in  fact  it  has  been  said,  that  there  is  entirely  too  much  mere 
engineering  opinion  upon  this  subject  and  not  a  well-defined 
concentrated  mass  of  data  and  solid  convictions.  It  is 
equally  true,  and  should  be  kept  in  mind,  that  the  time  given 
by  the  Board  to  the  consideration  of  the  subject  in  all  its 
practical  bearings,  including  an  examination  of  actual  con- 
ditions on  the  Isthmus,  was  limited  to  so  short  a  period 
that  it  would  be  contrary  to  all  human  experience  that  this 
report  should  represent  an  infallible  or  final  verdict  for  or 
against  either  of  the  two  propositions. 

It  is  necessary  to  keep  in  mind  certain  facts  which  may  be 
concisely  stated,  and  which  I  do  not  think  have  been  pre- 
viously brought  to  the  attention  of  Congress.  While  the 
Board  had  been  appointed  by  the  President  on  June  24,1905, 
the  first  business  meeting  did  not  take  place  until  September 
1,  and  the  final  meeting  of  the  full  Board  occurred  on  Novem- 
ber 24th  of  the  same  year.  This  was  the  twenty-seventh 
meeting  during  a  period  of  eighty-five  days,  after  which  there 
were  three  more  meetings  of  the  American  members,  the  last 
having  been  held  on  January  31,  1906.  Thus  the  actual 
proceedings  of  the  full  Board  were  condensed  into  twenty- 
seven  meetings  during  less  than  three  months,  a  part  of 
which  time — or,  to  be  specific,  six  days — was  spent  on  the 
Isthmus. 

The  minutes  of  the  proceedings  have  been  printed  and 
form  a  part  of  the  final  report  made  to  the  President  under 
date  of  January  10,  1906.  They  do  not  afford  as  complete 
an  insight  into  the  business  transactions  of  the  Board  as 
would  be  desirable,  and  the  evidence  is  wanting  that  the 
subject  was  as  thoroughly  discussed  in  all  its  details,  with 
particular  reference  to  the  two  propositions  of  a  sea-level 
or  a  lock  canal,  as  would  seem  necessary.  Very  important 
features  necessary  to  the  sea-level  plan  were  treated  in  the 
most  superficial  way,  guessed  at,  or  wholly  ignored.  I  do 
not  hestitate  to  say  that  no  banking  house  in  the  world  called 

231 


Life  Insurance  and  Other  Subjects 

upon  to  provide  funds  necessary  for  an  enterprise  of  this 
magnitude  as  a  private  undertaking  would  advance  a  single 
dollar  upon  a  project  as  it  is  here  presented  by  the  majority 
of  the  Board  to  the  American  Congress  as  the  final  conclu- 
sion of  engineers  of  the  highest  standing.  The  Board,  as  I 
have  said,  divided  upon  the  question,  and  by  a  majority  of 
eight  pronounced  in  favor  of  a  sea-level  against  a  minority 
of  five  in  favor  of  a  lock  canal.  Let  us  inquire  how  this  con- 
clusion, of  momentous  importance  to  the  nation,  was  arrived 
at  and  whether  the  minutes  of  the  Board  furnish  a  conclusive 
answer. 

As  early  as  the  sixth  meeting,  or  on  September  16th — that 
is,  after  the  Board  had  been  only  fifteen  days  in  existence — 
a  resolution  was  introduced  by  Mr.  Hunter,  chief  engineer 
of  the  Manchester  Ship  Canal,  requesting  that  a  special 
committee  be  appointed  to  prepare  at  once  a  project  for  a 
sea-level  canal. 

Mr.  Spooner. — What  was  the  date  of  the  resolution  with 
respect  to  the  lock  canal  ? 

Mr.  Dryden. — October  3d,  seventeen  days  afterwards. 

In  marked  contrast,  it  was  not  until  after  the  Board  had 
visited  the  Isthmus  and  while  the  members  were  on  their 
way  home — that  is,  at  sea — on  October  3d,  that,  on  motion 
of  Mr.  Stearns,  a  corresponding  committee  was  appointed 
to  prepare  plans  for  a  lock  canal.  The  recital  of  dates  is 
of  very  considerable  importance,  for  it  is  evident  that  there 
was  a  decided  and  early  preference  on  the  part  of  certain 
members  of  the  Board  for  a  sea-level  canal,  and  that  to  this 
particular  project  more  attention  was  given  and  a  more  de- 
termined attempt  was  made  to  secure  data  in  its  defense 
than  to  the  corresponding  project  for  a  lock  canal.  That 
is  to  say,  while  the  special  committee  for  the  considera- 
tion of  a  sea-level  canal  had  been  appointed  on  Septem- 
ber 16,  the  corresponding  committee  to  consider  the  lock 
project  was  not  appointed  until  October  3d,  or  seventeen 

232 


The  American  Type  of  Isthmian  Canal 

days  later,  with  the  additional  disadvantage  of  the  Board 
being  on  the  ocean,  with  no  opportunity  to  send  for  persons 
and  papers  during  the  short  period  of  time  remaining  to  take 
into  due  consideration  all  the  facts  pertaining  to  a  lock  canal, 
for,  as  I  have  said  before,  the  last  business  meeting  was  held 
on  November  24th. 

Mr.  Foraker. — Mr.  President 

The  Vice  President. — Does  the  Senator  from  New  Jer- 
sey yield  to  the  Senator  from  Ohio  ? 

Mr.  Dry  den. — Certainly. 

Mr.  Foraker. — I  would  like  to  ask  the  Senator  whether 
on  the  1 6th  of  September,  when  this  motion  was  made  by 
Mr.  Hunter,  if  I  remember  correctly,  the  Board  of  Engineers 
had  completed  their  investigations  and  explorations  on  the 
Isthmus  ?     I  did  not  observe. 

Mr.  Dry  den. — No. 

Mr.  Kittredge. — Mr.  President 

The  Vice  President. — Does  the  Senator  from  New  Jer- 
sey yield  to  the  Senator  from  South  Dakota  ? 

Mr.  Dryden. — I  yield. 

Mr.  Kittredge. — If  the  Senator  from  New  Jersey  will  per- 
mit me,  I  will  be  glad  to  answer  the  question  of  the  Senator 
from  Ohio.  The  Board  of  Consulting  Engineers  sailed  from 
New  York  on  the  28th  of  September  for  the  Isthmus  and 
returned  about  the  middle  or  20th  of  October. 

Mr.  Foraker. — Sailed  from  the  Isthmus  ? 

Mr.  Kittredge. — Sailed  from  New  York  for  the  Isthmus. 

Mr.  Foraker. — Then  the  motion  was  made  by  Mr.  Hun- 
ter before  the  Board  of  Engineers  left  the  United  States. 

Mr.  Kittredge. — Certainly;  to  appoint  a  committee  of 
investigation. 

Mr.  Dryden. — I  should  like  to  say  at  this  point  that  while 
I  have  gladly  yielded  to  Senators,  I  think  it  is  quite  probable 
that  before  I  get  through  I  shall  cover  any  questions  that 
may  be  asked.     I  would  prefer  to  complete  my  remarks, 

233 


Life  Insurance  and  Other  Subjects 

and  then  I  shall  be  very  glad  to  answer  any  questions  that 
Senators  may  choose  to  ask. 

Mr.  Foraker. — I  beg  pardon. 

Mr.  Dryden. — I  was  glad  to  yield  to  the  Senator. 

Mr.  Foraker. — The  speech  is  a  very  interesting  one. 

Mr.  Dryden. — There  is  nothing  in  the  minutes  of  the 
Board  which  disclosed  that  either  proposition  received  the 
necessary  deliberate  consideration  of  the  extremely  complex 
and  important  details  entering  into  the  two  respective  projects, 
but  it  is  evident  that,  regarding  the  sea-level  proposition  at 
least,  there  was  a  decided  bias  practically  from  the  outset 
which  matured  in  the  majority  report  favoring  that  propo- 
sition. What  was  in  the  minds  of  the  members,  what  was 
done  outside  of  the  Board  meetings,  by  what  means  or 
methods  conclusions  were  reached,  has  not  been  made  a 
matter  of  record  and  is  not,  therefore,  within  the  knowledge 
of  Congress. 

It  is  true  that  the  respective  reports  of  the  two  commit- 
tees were  brought  before  the  Board  as  a  whole  on  November 
14th  and  that  the  subject  was  discussed  at  some  length  on 
November  18th,  when  each  member  of  the  Board  ex- 
pressed his  views  for  or  against  one  of  the  two  projects. 
But  there  remained  only  ten  days  before  the  last  business 
meeting  of  the  Board  was  held,  when  the  foreign  members 
sailed  for  home.  The  final  reports,  as  they  are  now  before 
Congress,  apparently  never  received  the  proper  and  ex- 
tended consideration  of  the  Board  as  a  whole,  and  the  minority 
report  favoring  a  lock  canal  seems  never  to  have  been  dis- 
cussed upon  its  merits  at  all.  When  I  recall  the  very  differ- 
ent procedure  of  the  technical  commission  appointed  by 
the  New  Panama  Canal  Company,  which  extended  its  con- 
sideration of  the  subject  from  February  3,  1896,  to  Septem- 
ber 8,  1898,  during  which  time  ninety-seven  stated  meetings 
and  a  large  number  of  informal  meetings  were  held,  I  say, 
it  seems  to  me,  from    a  practical   business  point  of  view, 

234 


The  American  Type  of  Isthmian  Canal 

casting  no  reflection  upon  either  the  ability  or  the  fairness 
of  judgment  of  the  members  of  the  International  Board,  that 
the  mere  element  of  time  should  weigh  decidedly  in  favor  of 
the  verdict  of  the  technical  commission  of  1898,  which  was 
unanimous  for  a  lock  canal. 

Of  the  technical  commission  of  1896-1898,  Mr.  Hunter, 
chief  engineer  of  the  Manchester  Ship  Canal,  was  a  member, 
and  he  at  that  time,  without  a  word  of  dissent,  joined  the 
other  members  in  giving  the  unanimous  and  emphatic  ex- 
pression of  the  committee  in  favor  of  a  lock  canal. 

Mr.  Teller. — Mr.  President 

The  Vice  President. — Does  the  Senator  from  New  Jer- 
sey yield  to  the  Senator  from  Colorado  ? 

Mr.  Dry  den. — Certainly. 

Mr.  Teller. — Will  the  Senator  kindly  repeat  the  date  of 
that  ? 

Mr.  Dryden. — Of  the  technical  commission  of  1 896-1898, 
Mr.  Hunter,  the  chief  engineer  of  the  Manchester  Canal, 
was  a  member.  The  technical  commission  was  of  the  new 
French  company. 

Mr.  Teller. — You  refer  to  the  commission  of  the  new 
French  company  ? 

Mr.  Dryden. — Yes,  sir;  the  commission  of  the  new  French 
company. 

Why  he  should  now  change  his  views  and  convictions 
and  why  he  should  now  be  so  emphatic  and  pronounced  in 
favor  of  a  sea-level  project  is  not  set  forth  in  anything  that 
has  been  printed  or  been  communicated  to  the  Senate  Com- 
mittee on  Interoceanic  Canals.  This  hurried  action,  this 
scanty  consideration,  as  I  have  stated,  is  the  foundation  upon 
which  the  advocates  of  the  sea-level  plan  rest  their  appeal 
for  support.  This  is  the  report  and  the  evidence  upon  which 
Congress  is  requested  to  pronounce  in  favor  of  a  sea-level 
project  and  give  its  indorsement  to  a  plan  which  will  involve 
the  country  in  at  least  $100,000,000  of  additional  expendi- 

235 


Life  Insurance  and  Other  Subjects 

ture  and  which  will  delay  the  opening  of  the  canal  for  practi- 
cal purposes  of  navigation  possibly  for  ten  years  or  more 
after  the  lock  canal  can  be  finished  and  opened  for  use. 

The  Isthmian  Commission  restates  certain  points  in  a 
clear  and  precise  way,  which  leaves  no  escape  from  the  con- 
clusion that  both  as  to  time  and  cost  the  majority  members  of 
the  Board  materially  underestimated  important  factors,  and 
that  they  have  every  reason  to  believe  that  the  total  estimate 
of  cost  of  a  sea-level  canal  should  be  raised  to  $272,000,000, 
and  that  the  estimate  of  time  for  construction  should  be  in- 
creased to  at  least  fifteen  and  a  half  years.  But  under  cer- 
tain readily  conceivable  conditions  it  is  practically  certain 
that  the  construction  of  a  sea-level  canal  will  consume  not 
less  than  twenty  years. 

The  Isthmian  Commission  re-examined  carefully  the 
question  of  relative  efficiency  of  the  proposed  sea-level  canal 
compared  with  a  lock  canal,  and  they  pronounce  emphatic- 
ally and  unequivocally  in  favor  of  the  lock  project.  They 
consider  that  the  assumed  danger  from  accidents  to  locks  by 
passing  vessels  or  otherwise  is  greatly  exaggerated,  and 
hold  that  while  no  doubt  accidents  may  occur,  and  possibly 
will  occur,  such  dangers  can  and  will  be  sufficiently  guarded 
against  by  an  effective  method  of  supervision  and  control. 
They  hold  that  a  lock  canal  properly  constructed  and  man- 
aged is  in  no  sense  a  menace  to  the  safety  of  vessels,  and 
that  much  practical  experience  and  particularly  the  half- 
century  of  successful  operation  of  the  "Soo"  Canal  have 
demonstrated  the  contrary  beyond  dispute.  They  point  out 
that  the  canal  with  locks  at  a  level  of  85  feet  will  be  a  water- 
way three  times  the  size,  in  navigable  area,  of  the  projected 
sea-level  canal,  and,  omitting  the  locks  from  consideration, 
will  therefore  afford  three  times  the  shipping  facilities. 

They  show  that  in  the  sea-level  canal  there  will  be  many 
and  serious  curves,  while  in  the  lock  canal  the  courses  are 
straight  and  changes  of  direction  will  be  made  at  intersecting 

236 


The  American  Type  of  Isthmian  Canal 

tangents,  the  same  as  in  our  river  navigation,  in  which 
serious  accidents  are  practically  unknown.  They  show 
that  the  courses  in  a  lock  canal  can  be  marked  with  ranges 
which  will  greatly  facilitate  navigation,  particularly  at  night. 
The  Commission  points  out  that  the  argument  of  the  majority 
of  the  Board,  that  locks  will  limit  the  traffic  capacity  of  the 
canal,  carries  very  little  if  any  weight,  and  they  refer  to  the 
experience  of  the  "Soo"  Canal,  through  which  there  passes 
annually  a  larger  traffic  than  through  all  the  other  ship  canals 
of  the  world  combined. 

Finally,  the  Isthmian  Commission  discusses  the  cost  of 
operation  and  maintenance.  The  majority  of  the  Board 
submit  no  details  upon  this  most  important  item  in  canal 
construction  and  subsequent  operation.  What  banking 
house  in  the  world  would  advance  a  single  dollar  upon  a  canal 
or  railway  project  upon  a  mere  statement  of  the  probable 
ultimate  cost,  but  with  no  corresponding  information  as 
to  cost  of  maintenance  and  operation !  Having  been  ap- 
pointed to  re-examine  into  all  the  facts,  and,  so  to  speak,  to 
reconsider  the  entire  project,  the  majority  seriously  erred 
in  omitting  from  their  report  the  necessary  data  and  calcula- 
tions for  an  accurate  and  trustworthy  estimate  of  the  cost 
of  operation  and  maintenance  of  a  sea-level  canal. 

From  this  point  of  view  and  in  the  light  of  the  facts  as 
presented  by  the  Board  for  or  against  either  project,  the 
Isthmian  Commission  could  not  consistently  act  otherwise 
than  to  give  their  final  approval  to  the  more  specific  and  practi- 
cal recommendations  of  the  minority  members  of  the  Board, 
and  they  properly  say  that  "i*  appears  that  the  canal  pro- 
posed by  the  minority  of  the  Board  of  Consulting  Engineers 
can  be  built  in  half  the  time  and  for  a  little  more  than  half  of  the 
cost  of  the  canal  proposed  by  the  majority  of  the  Board."  They 
advance  a  number  of  specific  reasons  why  a  lock  canal  when 
completed  will  for  all  practical  purposes — commercial,  mili- 
tary, and  naval — be  a  better  canal  than  a  sea-level  waterway 

237 


Life  Insurance  and  Other  Subjects 

with  a  tidal  lock,  as  proposed  by  the  majority  members  of 
the  Board. 

The  report  of  the  Board  was  carefully  and  critically  ex- 
amined by  Chief  Engineer  Stevens,  of  the  Isthmian  Com- 
mission and  in  actual  charge  of  engineering  matters  on  the 
Isthmus.  Mr.  Stevens  is  a  man  of  very  large  practical 
American  engineering  experience,  and  he  adds  to  the  find- 
ings of  the  Commission  the  weight  of  his  authority,  decidedly 
and  unequivocally  in  favor  of  a  lock  canal.  He  states  as 
the  sum  of  his  conclusions  that,  all  things  considered,  the 
lock  or  high-level  canal  is  preferable  to  the  sea-level  type, 
so-called,  for  the  reason  that  it  will  provide  a  safer  and  quicker 
passage  for  ships;  that  it  will  provide  beyond  question  the 
best  solution  of  the  vital  problem  of  how  safely  to  care  for  the 
flood  waters  of  the  Chagres  and  other  streams;  that  provision 
is  offered  in  the  lock  project  for  enlarging  its  capacity  to 
almost  any  extent  at  very  much  less  expense  of  time  and 
money  than  can  be  provided  for  by  any  sea-level  plan;  that 
its  cost  of  operation,  maintenance,  and  fixed  charges,  in- 
cluding interest,  will  be  very  much  less  than  any  sea-level 
canal,  and  that  the  time  and  cost  of  its  construction  will 
not  be  more  than  one-half  that  of  a  canal  of  the  sea-level 
type;  that  the  lock  project  will  permit  of  navigation  by  night, 
and  that,  finally,  even  at  the  same  cost  in  time  and  money, 
Mr.  Stevens  would  favor  the  adoption  of  the  high-level 
lock  canal  plan  in  preference  to  that  of  the  proposed  sea- 
level  canal. 

To  these  observations  and  comments  the  Secretary  of 
War,  under  whose  supervision  this  great  work  is  going  on, 
adds  his  opinion,  which  is  decidedly  and  unequivocally  in 
favor  of  a  lock  canal.  In  his  letter  to  the  President,  Mr.Taft 
goes  into  all  the  important  details  of  the  subject  and  reveals  a 
masterly  grasp  of  the  situation  as  it  confronts  the  American 
people  at  the  present  time.  He  calls  attention  to  the  fact 
that  lock  navigation  is  not  an  experiment;  that  all  the  locks 

238 


The  American  Type  of  Isthmian  Canal 

in  the  proposed  canal  are  duplicated,  thereby  minimizing 
such  dangers  as  are  inherent  in  any  canal  project,  and  he 
adds  that  experience  shows  that  with  proper  plans  and  regu- 
lations the  dangers  are  much  more  imaginary  than  real. 
He  goes  into  the  facts  of  the  proposed  great  dam  to  be  con- 
structed at  Gatun  and  points  out  that  such  construction 
is  not  experimental,  but  sustained  by  large  American  ex- 
perience, which  is  larger,  perhaps,  than  that  of  any  other 
country  in  the  world.  He  gives  his  indorsement  to  the  views 
of  the  Isthmian  Commission  and  its  chief  engineer  that  the 
estimated  cost  of  time  and  money  for  completing  a  sea- 
level  canal  is  not  correctly  stated  by  the  majority  members 
of  the  Board,  and  that  the  cost,  in  all  probability,  will  be  at 
least  $25,000,000  more,  while,  in  his  opinion,  eighteen  to 
twenty  years  will  be  necessary  to  complete  the  sea-level 
project.  He  also  holds  that  the  military  advantages  will 
be  decidedly  in  favor  of  a  lock  canal. 

This  is  practically  the  present  status  of  facts  and  opinions 
regarding  the  canal  problem  as  it  is  now  before  Congress, 
except  that  since  January  the  Senate  Committee  on  Inter- 
oceanic  Canals  has  collected  a  large  mass  of  additional  and 
valuable  testimony.  Restating  the  facts  in  a  somewhat 
different  way,  Congress  is  asked  to  give  its  final  approval 
to  the  sea-level  proposition,  chiefly  favored  by  foreigners, 
and  to  give  its  disapproval  to  the  project  of  a  lock  canal, 
favored  by  American  engineers.  Congress  is  asked  to  rely 
in  the  main  upon  the  experience  gained  in  the  management 
of  the  Suez  Canal,  where  the  conditions  are  essentially  and 
fundamentally  different  from  what  they  are  or  ever  will  be 
on  the  Isthmus  of  Panama,  and  to  disregard  the  more  than 
fifty  years'  experience  in  the  successful  management  of  the 
lock  canals  connecting  the  Great  Lakes.  Congress  is  asked 
to  pronounce  against  the  lock  canal  because  in  the  manage- 
ment of  the  ship  canal  at  Manchester  several  accidents  have 
occurred,  due  to  carelessness  or  ignorance  in  navigation, 

239 


Life  Insurance  and  Other  Subjects 

and  we  are  asked  to  disregard  the  successful  record  of  the 
"Soo"  Canal,  in  the  management  of  which  only  three  acci- 
dents, of  no  very  serious  importance,  have  occurred  during 
more  than  fifty  years. 

In  no  other  country  in  the  world  has  there  been  more  ex- 
perience with  lock  canals  than  in  this.  For  nearly  a  hundred 
years  the  Erie  Canal  has  been  one  of  our  most  successful 
of  inland  waterways,  connecting  the  ocean  with  the  Great 
Lakes.  The  Erie  Canal  is  387  miles  in  length,  has  72  locks, 
and  is  now  being  enlarged  to  accommodate  barges  of  a  thou- 
sand tons,  at  a  cost  of  $101,000,000.  We  have  the  Ohio 
Canal,  with  150  locks;  the  Miami  and  Erie  Canal,  with  93 
locks;  the  Pennsylvania  Canal,  with  71  locks;  the  Chesa- 
peake and  Ohio  Canal,  with  73  locks;  and  numerous  other 
inland  waterways  of  lesser  importance.  It  is  a  question  of 
degree  and  not  of  kind,  for  the  problem  is  the  same  in  all 
essentials  and  confronts  Congress  as  much  in  the  proposed 
deep  waterway  connecting  tide-water  with  the  Great  Lakes, 
in  which  locks  are  proposed  with  a  lift  of  40  feet,  or  more, 
or  very  considerably  in  excess  of  the  proposed  lift  of  the 
locks  on  the  Isthmian  canal. 

The  proposed  ship  canal  from  Lake  Erie  to  the  Ohio 
River  provides  for  34  locks.  The  suggested  canal  from 
Lake  Michigan  to  the  Illinois  and  Mississippi  rivers  pro- 
vides for  37  locks,  and,  finally,  the  projected  ship  canal  from 
the  St.  Lawrence  River  to  Lake  Huron  contemplates  22 
locks.  So  that  lock  canals  of  exceptional  magnitude  are 
not  only  in  existence,  but  new  canals  of  this  type  are  con- 
templated in  the  United  States  and  Canada. 

In  other  words,  Congress  is  asked  to  regard  with  prefer- 
ence the  judgment  and  opinions  of  foreign  engineers  and 
to  disregard  the  judgment  and  opinions  of  American  engi- 
neers We  are  seriously  asked  to  completely  disregard 
American  opinion,  as  voiced  by  the  Isthmian  Commission,  re- 
sponsible for  the  enterprise  as  a  whole;  as  voiced  by  the 

24.0 


The  American  Type  of  Isthmian  Canal 

Secretary  of  War,  responsible  for  the  time  being  for  the  proper 
execution  of  the  work;  as  voiced  by  Chief  Engineer  Stevens, 
who  stands  foremost  among  Americans  in  his  profession,  and 
finally,  as  voiced  by  all  the  engineers  now  on  the  Isthmus, 
who  have  a  practical  knowledge  of  the  actual  conditions, 
and  who  are  as  thoroughly  familiar  as  any  class  of  men  with 
the  problems  which  confront  us  and  with  the  conditions 
which  will  have  to  be  met.  I  for  one,  leaving  out  of  consid- 
eration for  the  present  details  which  are  subject  to  modifica- 
tion and  change,  believe  that  it  will  be  a  fatal  error  for  the 
nation  to  commit  itself  to  the  practically  hopeless  and  vision- 
ary sea-level  project  and  to  delay  for  many  years  the  open- 
ing of  this  much  needed  waterway  connecting  the  Atlantic 
with  the  Pacific.  I  for  one  am  opposed  to  a  waste  of  untold 
millions  and  to  additional  burdens  of  needless  taxation, 
while  the  project  of  a  lock  canal  offers  every  practical  ad- 
vantage, offers  a  canal  within  a  reasonable  period  of  time  and 
at  a  reasonable  cost,  offers  a  waterway  of  enormous  advan- 
age  to  American  shipping,  of  the  greatest  possible  value  to 
the  nation  in  the  event  of  war,  and  the  opportunity  for  the 
American  people  to  carry  into  execution  at  the  earliest  possi- 
ble moment  what  has  been  called  the  "dream  of  navigators," 
and  what  has  thus  far  defied  the  engineering  skill  of  Euro- 
pean nations. 

But  in  addition  to  the  evidence  presented  for  or  against 
a  sea-level  or  lock  canal  project  by  the  two  conflicting  re- 
ports of  the  Board  of  Consulting  Engineers,  there  is  now 
available  a  very  considerable  mass  of  testimony  of  American 
engineers  who  were  called  as  witnesses  before  the  Senate 
Committee  on  Interoceanic  Canals.  The  testimony  has 
been  printed  as  a  separate  document  and  makes  a  volume 
of  nearly  a  thousand  pages.  Much  of  this  evidence  is  con- 
flicting, much  of  it  is  mere  engineering  opinion,  much  of 
it  comes  perilously  near  to  being  engineering  guesswork, 
but  a  large  part  of  it  is  of  practical  value  and  may  safely  be 

24.1 


Life  Insurance  and  Other  Subjects 

relied  upon  to  guide  the  Congress  in  an  effort  to  arrive  at  a 
final  and  correct  conclusion  respecting  the  type  of  canal  best 
adapted  to  our  needs  and  requirements. 

A  critical  examination  and  review  of  this  testimony,  as 
presented  to  the  Senate  Committee  from  day  to  day  for 
nearly  five  months,  including  the  testimony  of  administra- 
tive officers  and  others,  relating  to  Panama  Canal  affairs 
generally,  is  not  practicable  at  this  late  stage  of  the  session. 
Among  others,  the  committee  examined  Mr.  John  F.  Stevens, 
chief  engineer,  upon  all  the  essential  points  in  controversy, 
regarding  which,  in  the  light  of  additional  experience 
and  a  very  considerable  amount  of  new  and  more  exact 
information,  Mr.  Stevens  reaffirms  his  convictions  in  favor 
of  the  practicability  and  superior  advantages  of  a  lock 
canal. 

In  opposition  to  the  views  and  conclusions  of  Mr.  Stevens, 
Prof.  William  H.  Burr  pronounced  himself  emphatically 
in  favor  of  the  sea-level  project.  As  a  member  of  the  former 
Isthmian  Commission,  reporting  upon  the  type  of  canal, 
Mr.  Burr  had  signed  the  report  in  favor  of  the  lock  project, 
but  as  a  member  of  the  Board  of  Consulting  Engineers  he  had 
sided  with  the  majority  favoring  the  sea-level  canal.  Thus 
engineering  opinion  is  as  apt  as  any  other  human  opinion 
to  undergo  a  change,  and  the  convictions  of  one  year  in 
favor  of  a  proposition  may  change  into  opposite  convictions, 
favoring  an  opposite  proposition,  only  a  few  years  later. 
Mr.  William  Barclay  Parsons,  also  a  member  of  the  Board 
of  Consulting  Engineers,  who  had  signed  the  report  in  favor 
of  the  sea-level  project,  gave  further  evidence  before  the 
committee,  restating  his  views  and  convictions  in  favor  of 
the  sea-level  type.  Mr.  William  Noble,  an  engineer  of  large 
experience,  for  some  years  in  charge  of  the  "Soo"  Canal,  and 
who,  as  a  member  of  the  Board  of  Consulting  Engineers, 
had  signed  the  report  in  favor  of  a  lock  project,  restates  his 
views  and  convictions  in  favor  of  a  lock  canal.      Mr.  Noble 


242 


The  American  Type  of  Isthmian  Canal 

had  also  been  a  member  of  the  Isthmian  Commission  of 
1902,  reporting  at  that  time  in  favor  of  a  lock  canal. 

Mr.  Frederick  P.  Stearns,  the  foremost  American  authori- 
ty on  earth-dam  construction,  gave  evidence  regarding  the 
safety  of  the  proposed  dams  at  Gatun  and  other  points. 
His  views  and  conclusions  are  based  upon  large  practical 
experience  and  a  profound  theoretical  knowledge  of  the 
subject.  Mr.  Stearns  had  also  been  a  member  of  the  Con- 
sulting Board  of  Engineers  and  as  such  had  signed  the 
report  of  the  minority  in  favor  of  the  lock  project.  He  re- 
affirmed his  views  favoring  a  lock  canal  with  a  dam  at  Gatun. 
Mr.  John  F.  Wallace,  former  chief  engineer,  gave  testimony 
in  favor  of  the  sea-level  type  and  strongly  opposed  the  lock 
project.  Col.  Oswald  H.  Ernst,  United  States  Army,  than 
whom  probably  few  are  more  thoroughly  familiar  with  con- 
ditions on  the  Isthmus  and  the  entire  project  of  canal  con- 
struction, declared  himself  to  be  strongly  in  favor  of  the  lock- 
canal  project. 

Gen.  Peter  C.  Hains,  United  States  Army,  equally  well 
qualified  to  express  an  opinion  on  the  subject  in  all  its  im- 
portant points,  pronounced  himself  strongly  and  unequivo- 
cally in  favor  of  a  lock  canal. 

Gen.  Henry  L.  Abbot,  United  States  Army,  one  of  the 
highest  authorities  on  river  hydraulics,  thoroughly  familiar 
with  Mississippi  River  flood  problems,  a  former  member 
of  the  International  Technical  Commission,  of  the  New 
Panama  Canal  Company,  and  for  a  time  its  consulting  engi- 
neer, a  member  of  different  Isthmian  commissions,  and  also 
a  member  of  the  consulting  board,  re-emphasized  his  con- 
viction, sustained  by  much  valuable  evidence,  in  favor  of 
the  lock  canal  project.  General  Abbot,  as  a  member  of 
the  consulting  board,  had  signed  the  report  of  the  minority 
in  favor  of  a  lock  canal.  Gen.  George  W.  Davis,  United 
States  Army,  for  a  time  governor  of  the  Canal  Zone  and 
president  of  the  International  Board  of  Consulting  Engineers, 

H3 


Life  Insurance  and  Other  Subjects 

restated  his  views  and  convictions  as  opposed  to  the  lock 
canal  type  and  in  favor  of  the  sea-level  project.  The  last 
witness,  Mr.  B.  M.  Harrod,  an  engineer  of  large  experi- 
ence, for  many  years  connected  with  levee  construction  and 
familiar  with  the  flood  problems  of  the  Mississippi  River, 
submitted  a  statement  in  which  he  restated  his  views  in  favor 
of  a  lock  canal. 

So  that,  summing  up  the  evidence  of  twelve  engineers 
examined  before  the  committee  (including  Mr.  Lindon  W. 
Bates),  there  were  eight  American  engineers  strongly  and 
unequivocally  in  favor  of  a  lock  canal,  while  four  expressed 
their  views  to  the  contrary.  Subjecting  the  mass  of  testi- 
mony to  a  critical  examination,  I  cannot  draw  any  other 
conclusion  or  arrive  at  any  other  conviction  than  that  the 
lock  project,  in  the  light  of  the  facts  and  large  experience,  has 
decidedly  the  advantage  over  the  sea-level  proposition.  And 
this  view  is  strengthened  by  the  fact  that  the  opinion  of  the 
engineers  most  competent  to  judge — that  is,  men  like  Mr. 
Noble,  who  has  thoroughly  studied  lock  canal  construction, 
management,  and  navigation,  who  as  a  member  of  the 
United  States  Deep  Waterway  Commission  re-examined 
probably  as  thoroughly  as  any  living  authority  into  the  entire 
subject  of  the  mechanics  and  practice  of  lock  canals — is  em- 
phatically opposed  to  the  sea-level  proposition. 

When  a  man  like  Mr.  Stearns,  of  national  and  inter- 
national reputation  as  a  waterworks  engineer,  who  for 
many  years  has  been  in  charge  of  the  extensive  construc- 
tion work  of  the  Massachusetts  Metropolitan  Water  and 
Sewerage  Board,  and  who  probably  has  as  large  a  practical 
and  theoretical  knowledge  of  earth-dam  construction  as  any 
living  authority,  declares  himself  to  be  strongly  in  favor  of 
the  lock  project  and  believes  in  the  entire  safety  of  the  dams 
required  in  connection  therewith,  I  hold  that  such  a  judgment 
may  be  relied  upon  and  that  it  should  govern  in  national 
affairs   as  it  would  govern   in   private  affairs  if  the  canal 

244 


The  American  Type  of  Isthmian  Canal 

construction  were  a  business  enterprise  and  involved  the  risk 
of  private  capital.  When  we  find  a  man  like  Mr.  Harrod, 
who  for  many  years  has  been  in  charge  of  levee  construction 
in  Louisiana,  thoroughly  familiar  with  the  theory  and  prac- 
tice of  river  and  flood  control,  express  himself  in  favor  of 
the  lock  project  and  in  opposition  to  the  sea-level  can;  1,  I 
hold  that  we  may  with  entire  confidence  accept  his  judgment 
as  a  governing  principle  in  arriving  at  a  final  decision  re- 
specting the  type  of  the  canal  to  be  finally  fixed  by  the 
Congress. 

And,  going  back  to  the  minority  report  of  the  Board  of 
Consulting  Engineers,  we  find  that  Mr.  Joseph  Ripley,  the 
general  superintendent  at  present  in  charge  of  the  "  Soo " 
Canal,  and  Mr.  Isham  Randolph,  chief  engineer  of  the  sani- 
tary district  of  Chicago,  and  thoroughly  familiar  with  canal 
construction  and  management,  both  American  engineers  of 
much  experience  and  high  standing,  pronounce  themselves 
in  favor  of  a  lock  canal.  When  confronted  by  these  facts, 
I  for  one  would  rely  upon  American  engineers,  American 
conviction  and  American  experience,  and  accept  the  lock- 
canal  proposition. 

In  this  matter,  as  in  all  other  practical  problems,  we  may 
safely  take  the  business  point  of  view,  and  calculate  without 
bias  or  prejudice  the  respective  advantages  and  disadvan- 
tages; and  the  more  thorough  the  method  of  reasoning  and 
logic  applied  to  the  canal  problem  the  more  emphatic  and  in- 
controvertible the  conclusion  that  the  Congress  should  decide 
in  favor  of  a  plan  which  will  give  us  a  navigable  waterway 
across  the  IstKmus  within  a  measurable  distance  of  time  and 
with  a  reasonable  expenditure  of  money,  as  opposed  to  a 
visionary  theory  of  an  ideal  canal  which  may  ultimately  be 
constructed,  possibly  for  the  exclusive  benefit  of  future  gen- 
erations, but  at  an  enormous  waste  of  money,  time,  and 
opportunity.  I  do  not  think  we  want  to  repeat  at  this  late 
stage  of  the  canal  problem  the  fatal  error  of  De  Lesseps,  who, 

H5 


Life  Insurance  and  Other  Subjects 

when  he  had  the  opportunity  in  1879  to  make  a  choice  of  a 
practical  waterway,  being  influenced  by  his  great  success 
at  Suez,  upon  the  most  fragmentary  evidence  and  in  the 
absence  of  definite  knowledge  of  actual  conditions,  decided 
beforehand  in  favor  of  a  sea-level  canal.  It  was  largely  his 
bias  and  prejudice  which  proved  fatal  to  the  enterprise  and 
to  himself. 

I  may  recall  that  the  so-called  "international  congress  of 
1879"  was  a  mere  subterfuge;  that  the  opinions  of  eminent 
engineers,  including  all  the  Americans,  were  opposed  to  a  sea- 
level  project  and  in  favor  of  a  lock  canal,  but  De  Lesseps  had 
made  his  plans,  he  had  arrived  at  his  decision,  and  in  his  own 
words,  at  a  meeting  of  the  American  Society  of  Civil  Engi- 
neers held  in  January,  1880,  said,  "I  would  have  put  my  hat 
on  and  walked  out  if  any  other  plan  than  a  sea-level  canal 
project  had  been  adopted." 

The  situation  to-day  is  very  similar  to  the  critical  state  of 
the  canal  question  in  1902.  What  was  then  a  question  of 
choice  of  route  is  to-day  a  question  of  choice  of  plan.  What 
was  then  a  geographical  conflict  is  to-day  a  conflict  of  en- 
gineering opinions.  It  has  been  made  clear  by  the  refer- 
ence to  the  report  of  the  Board  of  Consulting  Engineers  and 
by  the  testimony  of  the  engineers  before  the  Senate  committee 
that  the  opinion  of  eminent  experts  is  so  widely  at  variance 
that  there  is  little,  if  any,  hope  of  an  ultimate  reconciliation. 
It  is  a  choice  of  one  plan  or  the  other — of  a  sea-level  or  a 
lock  canal.  In  respect  to  either  plan  a  mass  of  testimony 
and  data  exists,  which  has  been  brought  forward  to  sustain 
one  view  or  the  other.  In  respect  to  either  "plan  there  are 
advantages  and  disadvantages.  The  majority  of  the  Senate 
Committee  on  Interoceanic  Canals  have  reported  favorably 
a  bill  providing  for  the  construction  of  a  canal  at  sea-level. 
From  this  majority  opinion  the  minority  of  the  committee 
emphatically  and  unequivocally  dissent,  and  in  their  report 
they  express  themselves  in  favor  of  the  lock  canal. 

24.6 


The  American  Type  of  Isthmian  Canal 

The  minority  report  calls  attention  to  the  changed  con- 
ditions and  requirements,  which  now  demand  a  canal  of  much 
larger  dimensions  than  originally  proposed.  Even  as  late  as 
1901  the  depth  of  the  canal  prism  was  to  be  only  35  feet, 
against  40  to  45  feet  in  the  project  of  only  five  years  later. 
The  bottom  width  has  been  increased  from  150  to  200  feet 
and  over.  The  length  of  the  locks  has  been  changed  from 
740  to  900  feet,  and  the  width  from  84  to  90  feet.  These 
facts  must  be  kept  in  mind,  for  they  bear  upon  the  ques- 
tions of  time  and  cost,  and  a  sea-level  or  lock  canal,  as 
proposed  to-day,  is  in  all  respects  a  very  much  larger 
affair,  demanding  very  superior  facilities  for  traffic,  than  any 
previous  canal  project  ever  suggested  or  proposed.  This 
change  in  plans  was  made  necessary  by  the  Spooner  act, 
which  provides  for  a  canal  of  such  dimensions  that  the 
largest  ship  now  building,  or  likely  to  be  built  within  a 
reasonable  period  of  time,  can  be  accommodated. 

Now,  the  estimated  saving  in  money  alone  by  adopting 
the  lock  plan — that  is,  on  the  original  investment,  to  say 
nothing  of  accumulating  interest  charges — would  be  at  least 
$100,000,000.  Granting  all  that  is  said  in  favor  of  a  sea- 
level  canal,  it  is  not  apparent  by  any  evidence  produced  that 
such  a  canal  would  prove  a  material  advantage  over  a  lock 
canal.  All  its  assumed  advantages  are  entirely  offset  by  the 
vastly  greater  cost  and  longer  period  of  time  necessary  for 
construction,  and  I  am  confident  that  they  would  not  be  con- 
sidered for  a  moment  if  the  canal  were  built  as  a  commercial 
enterprise.  I  do  not  think  that  they  should  hold  good  where 
the  canal  is  the  work  of  the  nation,  because  a  vast  sum  of 
money  otherwise  needed  will  be  eventually  sunk  if  the 
sea-level  project  is  adopted,  and  entirely  upon  the  theory 
that  if  certain  conditions  should  arise  then  it  would  be 
better  to  have  a  sea-level  than  a  lock  canal.  We  have 
never  before  proceeded  in  national  undertakings  upon  such 
an  assumption;  we  have  never  before,  as  far  as  I  know, 

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Life  Insurance  and  Other  Subjects 

deliberately  disregarded  every  principle  of  economy  in  money 
and  time;  we  have  never  before  in  national  projects  attempted 
to  conform  to  merely  theoretical  ideas,  but  we  have  always 
adhered  to  practical,  hard  common-sense  notions  of  what 
is  best  under  the  circumstances. 

The  majority  of  the  committee  attack  the  proposition 
that  the  proposed  lock  canal  will  have  "locks  with  dimen- 
sions far  exceeding  any  that  have  ever  been  made."  If  this 
principle  were  adopted  in  every  other  line  of  human  effort  all 
advancement  would  come  to  an  end — even  the  canal  enter- 
prise itself — for,  as  it  stands  to-day,  it  far  exceeds  in  magni- 
tude any  corresponding  effort  ever  made  by  this  or  any  other 
nation.  They  say  that  the  proposed  flight  of  three  locks  at 
Gatun  would  be  objectionable  and  unsafe,  but  we  have  the 
evidence  of  American  engineers  of  the  highest  standing, 
whose  reputations  are  at  stake,  who  are  absolutely  confident 
that  these  locks  can  be  constructed  and  operated  with  entire 
safety.  The  committee  say  that  "the  entry  through  and 
exit  from  these  contiguous  locks  is  attended  with  very  great 
danger  to  the  lock  gates  and  to  the  ships  as  well";  but  if  mere 
inherent  danger  of  possible  accidents  were  an  objection 
there  would  be  no  great  steamships,  no  great  battleships,  no 
great  bridges  and  tunnels,  no  great  undertakings  of  any  kind. 

The  committee  point  out  that  accidents  have  occurred 
in  the  "Soo"  Canal  and  in  the  Manchester  Ship  Canal;  but 
the  conditions,  in  the  first  place,  were  decidedly  different, 
and,  in  the  second  place,  they  proved  of  no  serious  conse- 
quence as  a  hindrance  to  traffic  and  did  no  material  injury  to 
the  canal.  The  "Soo"  Canal  has  been  in  operation  as  a  lock 
canal  for  some  fifty  years;  it  has  been  enlarged  from  time 
to  time,  and  to-day  accommodates  a  larger  traffic  than  passes 
through  all  other  ship  canals  of  the  world  combined.  It  is  a 
sufficient  answer  to  the  objections  to  say  that  this  experience 
should  have  a  determining  influence  in  arriving  at  a  con- 
clusion, for  the  inherent  problems  of  lock-canal  construction 

24.8 


The  American  Type  of  Isthmian  Canal 

are  as  well  understood  by  American  engineers  as  any 
other  problems  or  questions  in  engineering  science.  The 
proposed  deep  waterway  with  a  30-foot  channel  from  Chicago 
to  tide-water,  which  has  been  surveyed  by  direction  of  Con- 
gress, proposes  an  expenditure  of  $303,000,000,  and  several 
locks  with  a  lift  of  40  feet  or  more.  The  enlargement  of 
the  Erie  Canal  by  the  State  of  New  York,  at  an  expenditure 
of  $101,000,000,  involves  engineering  problems,  including 
lock  construction,  not  essentially  different  from  those  inherent 
in  the  lock-canal  project  at  Panama;  and  if  these  problems 
can  be  solved  by  our  engineers  at  home,  it  stands  to  reason 
that  we  may  rely  upon  their  judgment  that  they  can  be  solved 
at  Panama. 

The  majority  of  the  Senate  committee  object  to  the  pro- 
posed dam  at  Gatun,  and  say  that — 

Earth  dams  founded  on  the  drift  and  silt  of  ages,  through  which  water 
habitually  percolates,  to  be  increased  by  the  pressure  of  the  85-foot  lock  when 
made,  have  been  referred  to  by  many  of  our  technical  advisers  as  another  element 
of  danger.  The  vast  masses  of  earth  piled  on  this  alluvial  base  to  the  height  of 
135  feet  will  certainly  settle,  and  as  the  drift  material  of  this  base  or  foundation 
has  varying  depth,  to  250  feet  or  more,  the  settlement  of  the  new  mass,  as  well 
as  its  base,  will  be  unequal,  and  it  is  predicted  that  cracks  and  fissures  in  the 
dam  will  be  formed,  which  will  be  reached  and  used  by  the  water  under  the 
pressure  above  mentioned,  and  will  cause  the  destruction  of  the  dam  and  the 
draining  off  of  the  great  lake  upon  which  the  integrity  of  the  entire  canal  rests. 

But  all  of  this  is  mere  conjecture.  The  evidence  of 
Engineer  Stearns,  a  man  of  large  experience,  and  of  Engi- 
neer Harrod,  familiar  with  river  hydraulics  and  levee  con- 
struction, and  of  many  others,  is  emphatically  to  the  contrary. 
There  is  not  an  American  engineer  of  ability,  nor  an  Ameri- 
can contractor  of  experience,  who  would  not  undertake  to 
build  the  proposed  dam  at  Gatun  and  guarantee  its  safety 
and  permanency  without  any  hesitation  whatever.  The 
alternative  proposal  of  a  dam  at  Gamboa  would  be  as  objec- 
tionable upon  much  the  same  ground,  and  the  dam  there, 
which  is  indispensable  to  the  sea-level  project,  has  also  been 
considered  unsafe  by  some  of  the  engineers.  In  all  ques- 
tions of  this  kind  the  aggregate  experience  of  mankind  ought 

H9 


Life  Insurance  and  Other  Subjects 

to  have  greater  weight  than  the  abstract  theories  of  individ- 
uals, and  I  am  confident  that  our  engineers,  who  have  so 
successfully  solved  problems  of  the  greatest  magnitude  in 
the  reclamation  projects  of  the  far  West  and  in  the  control 
and  regulation  of  the  floods  of  the  Mississippi  River,  will 
solve  with  equal  success  similar  problems  at  Panama. 

The  committee  further  says  that  the  sea-level  project 
contemplates  the  removal  of  some  110,000,000  cubic  yards 
of  material,  while  the  lock  canal  would  require  the  removal 
of  only  about  half  that  quantity,  or,  in  other  words,  that 
there  is  a  difference  of  some  57,000,000  cubic  yards,  which, 
"to  omit  to  take  out  .  .  .  is  to  confess  our  impotence, 
which  is  not  characteristic  of  the  American  people  or  their 
engineers  or  contractors."  By  this  method  of  reasoning  a 
nation  which  can  build  a  battleship  of  16,000  tons  displace- 
ment is  impotent  if  it  cannot  build  one  of  twice  that  tonnage, 
and  if  this  reason  applies  to  quantity  of  material,  why  not  say 
that  a  nation  which  can  dig  a  canal  150  feet  wide  through  a 
mountain  some  seven  miles  in  length  admits  its  impotence 
if  it  cannot  dig  one  300  feet  wide,  or  600  feet,  if  it  should 
please  to  do  so  ?  But  why  should  it  be  less  difficult  or  a 
declaration  of  impotency  on  the  part  of  our  engineers  to  build 
a  safe  lock  canal,  including  a  satisfactory  and  safe  controlling 
dam  at  Gatun  ?  As  I  conceive  the  problem,  it  is  one  of 
reasonable  compromise,  and  while  I  do  not  question  the 
ability  of  American  engineers  and  contractors  to  build  a 
sea-level  canal,  I  am  convinced  by  the  facts  in  evidence  that 
they  cannot  do  it  within  the  time  and  for  the  money  assumed 
by  the  advocates  of  the  sea-level  project. 

This  question  of  time  is  of  supreme  importance.  Ten 
years  in  a  nation's  life  is  often  a  long  space  in  national  his- 
tory. Many  times  the  map  of  the  world  has  been  changed 
in  less  than  a  decade.  No  man  in  1890  anticipated  the  war 
with  Spain  in  1898,  and  no  man  in  1906  can  say  what  import- 
ant event  may  not  happen  before  the  next  decade  has  passed. 

250 


The  American  Type  of  Isthmian  Canal 

The  progress  during  peace  is  far  greater  in  its  permanent 
effect  than  the  changes  brought  about  by  war.  The  world's 
commerce,  the  social,  commercial,  and  political  development 
of  the  South  American  republics  and  of  Asiatic  nations,  all 
depend,  more  or  less,  upon  the  completion  of  an  Isthmian 
waterway.  It  is  the  duty  of  this  nation,  since  we  have  assumed 
this  task,  to  construct  a  waterway  across  the  Isthmus  within 
the  shortest  reasonable  period  of  time.  Valuable  years 
have  passed,  valuable  opportunities  have  gone  by.  In  1884 
De  Lesseps,  with  supreme  confidence  and  upon  the  judgment 
of  his  engineers,  anticipated  the  opening  of  the  Panama  Canal 
in  1888.  That  was  nearly  twenty  years  ago.  Shall  it  be 
twenty  years  more  before  that  greatest  event  in  the  world's 
commercial  history  takes  place?  Had  De  Lesseps  in  1879 
gone  before  the  International  Congress  with  a  proposition  for 
a  feasible  canal  at  reasonable  cost,  free  from  prejudice  or 
bias,  had  he  then  adopted  the  American  suggestion  for  a  lock 
canal,  he  would  probably  have  lived  to  see  its  completion, 
and  the  world  for  fifteen  years  would  have  had  the  use  of  a 
practical  waterway  across  the  Isthmus. 

As  to  safety  in  operation,  which  the  committee  discuss 
in  their  report,  there  is  one  very  important  point  to  be  kept 
in  mind,  and  that  is  that  nine-tenths,  or  possibly  a  larger 
proportion,  of  shipping  will  be  of  vessels  of  relatively  small 
size.  If  this  should  be  the  case,  then  the  sea-level  project 
contemplates  a  canal  chiefly  designed  to  meet  the  possible 
needs  of  a  very  small  number  of  vessels  of  largest  size, 
while  the  lock  canal  provides  primarily  for  the  accommo- 
dation of  the  class  of  steamships  which  of  necessity  would 
make  the  largest  practical  use  of  the  Isthmian  waterway. 
Now,  it  stands  to  reason  that  special  precautions  would 
be  employed  during  the  passage  of  a  very  large  vessel, 
either  merchantman  or  man-of-war,  and  even  if  necessity 
should  demand  the  rapid  passage  of  a  fleet  of  vessels, 
say  twenty  or  thirty,  it  is  not  conceivable  that  a  condition 

25i 


Life  Insurance  and  Other  Subjects 

would  arise  which  could  not  be  efficiently  safeguarded 
against  by  those  in  actual  charge  and  responsible  for 
safety  in  the  management  of  the  canal.  Considering  the 
immense  tonnage  passing  through  the  "Soo"  Canal,  which 
would  not  be  equaled  in  the  Panama  Canal  for  a  century  to 
come,  the  very  few  and  relatively  unimportant  accidents  which 
have  occurred  during  the  fifty  years  of  operation  of  that 
waterway  are  in  every  respect  the  most  suggestive  indorse- 
ment of  the  lock-canal  project  which  could  be  advanced. 

The  time  of  transit,  in  the  opinion  of  the  majority  com- 
mittee of  the  Senate,  would  be  somewhat  longer  in  the 
case  of  a  lock  canal.  This  may  be  so,  though  much  de- 
pends upon  the  class  of  ships  passing  through  and  their 
number.  To  the  practical  navigator  the  loss  of  a  few  hours 
would  be  a  negligible  quantity  compared  with  the  higher 
tolls  that  will  necessarily  be  charged  if  an  additional  $100,- 
000,000  is  expended  in  construction  and  an  additional  interest 
burden  of  at  least  $2,000,000  per  annum  has  to  be  pro- 
vided for.  I  understand  that  the  actual  value  of  an  hour 
or  two  in  the  case  of  commercial  ships  of  average  size  would 
be  a  matter  of  comparatively  no  importance  in  contrast  with 
the  all-suggestive  fact  that  the  alternative  project  of  a  sea- 
level  canal  would  provide  no  navigation  whatever  across  the 
Isthmus  for  probably  ten  years  more.  If  it  is  an  advantage 
to  gain  an  hour  or  two  in  transit  ten  years  hence  by  having 
no  transisthmian  shipping  facilities  for  the  ten  years  in 
the  meantime,  then  it  might  as  well  be  argued  that  it  would 
be  better  to  project  a  sea-level  canal  300  feet  wide  at  every 
point,  so  that  the  commerce  of  the  year  2000  may  be  properly 
provided  for.  But  to  the  practical  navigator  of  the  year  19 16, 
who  leaves  the  port  of  New  York  for  San  Francisco  by  way 
of  Cape  Horn,  a  possible  loss  of  two  or  three  hours  or  more 
would  be  many  times  preferable,  if  the  Isthmus  were  open 
for  traffic,  to  a  certain  loss  of  from  forty  to  fifty  days  to  make 
the  voyage  all  around  South  America. 

252 


The  American  Type  of  Isthmian  Canal 

Upon  the  question  of  cost  of  maintenance  the  majority 
committee  in  their  report  point  out  that  the  Board  of 
Consulting  Engineers  did  not  submit  the  details  of  any 
estimate  of  cost  of  maintenance,  repairs,  etc.,  but  they 
say  that  this  factor  was  properly  taken  into  account  by 
the  minority  favoring  a  lock  canal.  Now,  there  is  prob- 
ably no  more  important  question  connected  with  the 
whole  canal  problem  than  this,  for  if  the  annual  expense 
of  maintenance,  to  be  provided  for  by  Congressional 
appropriations,  should  attain  such  an  exorbitant  figure  as 
to  make  any  fair  return  upon  the  investment  impossible, 
it  is  conceivable  that  the  most  serious  political  and  fi- 
nancial consequences  might  arise  and  the  success  of  the 
enterprise  itself  might  be  placed  in  jeopardy.  Upon  a 
maximum  cost,  in  round  figures,  of  $200,000,000  for  a 
lock  canal,  and  of  $300,000,000  as  a  minimum  for  a  sea- 
level  canal,  the  additional  annual  interest  charge  would  be 
at  least  $2,000,000. 

But  Mr.  Stearns  estimates  that  under  certain  condi- 
tions a  sea-level  canal  might  cost  as  much  as  $410,000,000, 
which  would  add  millions  of  dollars  more  per  annum  to 
the  fixed  charges  which  must  be  included  in  the  cost  of 
maintenance,  to  say  nothing  of  a  possibly  much  higher  cost 
of  operation.  Nor  can  I  agree  to  the  statement  that  the 
cost  of  operation  of  a  sea-level  canal  would  be  $800,000 
per  annum  less  than  in  the  case  of  a  lock  canal;  but,  on 
the  contrary,  I  am  fully  satisfied  that  the  expense  would  be 
very  much  greater  in  the  sea-level  project,  if  proper  allow- 
ance is  made  for  interest  charges  upon  the  additional 
outlay,  which  cannot  be  rightfully  ignored.  Upon  this 
important  point  the  evidence  of  the  engineers  and  of  the 
minority  members  of  the  Board  is  strongly  in  favor  of  the 
lock-canal  project. 

As  regards  ultimate  cost,  the  estimates  of  the  majority 
are  very  much  more  indefinite  and  conjectural  than  the  more 

253 


Life  Insurance  and  Other  Subjects 

carefully  prepared  estimates  of  the  minority  of  the  Board 
of  Consulting  Engineers.  Upon  this  point  the  majority 
of  the  Senate  committee  say: 

There  are  two  estimates  now  before  the  Senate,  both  originating  with  the  Board 
of  Consulting  Engineers.  The  basis  of  computation  of  cost  at  certain  unit  prices 
was  adopted  unanimously  by  the  Board,  and  we  are  told  that  the  cost,  with  the 
20  per  cent,  allowance  for  contingencies,  will  be,  for  the  sea-level  canal,  the  sum 
of  $247,021,200.  Your  committee  has  adopted  the  figures  stated  by  the  majority 
on  page  64  of  its  report  of  a  total  of  $250,000,000  for  the  ultimate  final  cost  of  the 
sea-level  canal. 

The  estimate  of  the  minority  for  a  lock  canal  at  a  level 
of  85  feet  is,  in  round  figures,  $140,000,000,  or  about  $110,- 
000,000  less  than  for  a  sea-level  canal,  which  would  represent 
a  difference  of  $2,200,000  per  annum  in  interest  charges  at 
the  lowest  possible  rate  of  2  per  cent.  The  majority  of  the 
Senate  committee  attempt  to  meet  this  difference  by  capitaliz- 
ing the  estimated  higher  maintenance  charge,  which  they  fix 
at  $800,000  per  annum,  and  they  thus  increase  the  total  cost 
of  a  lock  canal  by  $40,000,000;  but  this,  I  hold,  involves 
a  serious  financial  error,  unless  a  corresponding  allowance 
is  made  for  the  ultimate  cost  of  the  sea-level  project.  There 
is,  however,  no  serious  disagreement  upon  the  point  that  a 
sea-level  canal  in  any  event  would  cost  a  very  much  larger 
sum  as  an  original  outlay,  certainly  not  less  than  $120,000,- 
000  more,  and,  in  all  probability,  in  the  opinion  of  qualified 
engineers,  including  Mr.  Stevens,  the  chief  engineer,  twice 
that  sum. 

Reference  is  made  in  the  report  to  the  probable  value  of 
the  land  which  will  be  inundated  under  the  lock-canal  proj- 
ect with  a  dam  at  Gatun,  the  value  of  which  has  been 
placed  at  approximately  $300,000.  The  majority  of  the 
Senate  committee  estimate  that  this  amount  might  reach 
$10,000,000,  or  as  much  as  was  paid  for  the  entire  Canal 
Zone.  The  estimate  is  based  upon  the  price  of  certain  lands 
required  by  the  government  near  the  city  of  Panama,  but 
one  might  as  well  estimate  the  worth  of  land  in  the  Adiron- 
dacks  by  the  prices  paid  for  real  estate  in  lower  New  York. 

254- 


The  American  Type  of  Isthmian  Canal 

The  item,  no  doubt,  requires  to  be  properly  taken  into 
account,  but  two  independent  estimates  fix  the  probable 
sum  at  $300,000  for  lands  which  are  otherwise  practically 
valueless  and  which  would  only  acquire  value  the  moment 
the  United  States  should  need  them.  In  my  opinion,  the 
value  of  these  lands  will  not  form  a  serious  item  in  the 
total  cost  of  the  canal,  and  I  have  every  reason  to  believe 
that  independent  estimates  of  the  minority  engineers  of  the 
Consulting  Board,  and  of  Mr.  Stevens,  may  be  relied  upon 
as  conservative. 

The  majority  of  the  Senate  committee  further  say  that — 

It  is  not  necessary  to  dwell  upon  the  fact  that  all  naval  commanders  and  com- 
mercial masters  of  the  great  national  and  private  vessels  of  the  world  are  almost  to 
a  man  opposed  unalterably  to  the  introduction  of  any  lock  to  lift  vessels  over  the 
low  summit  that  nature  has  left  for  us  to  remove. 

I  am  not  aware  that  any  material  evidence  of  this  charac- 
ter has  come  before  the  Senate  Committee  on  Isthmian 
Affairs,  investigating  conditions  at  Panama.  I  do  know 
this,  however,  that  until  very  recently  it  has  been  the  Ameri- 
can project  to  construct  a  lock  canal.  All  the  former  advo- 
cates of  an  American  canal  by  way  of  Panama  or  Nicaragua, 
or  by  any  other  route,  contemplated  a  lock  canal  of  a  much 
more  complex  character  than  the  present  Panama  project. 
All  the  advocates  of  a  canal  across  the  Isthmus,  including 
many  distinguished  engineers  in  the  army  and  navy,  have 
been  in  favor  of  a  lock  canal,  and  almost  without  exception 
have  reported  upon  the  feasibility  of  a  lock  canal  across  the 
Isthmus  and  upon  its  advantages  to  commerce  and  naviga- 
tion, and  in  military  and  naval  operations  in  case  of  war. 
The  Nicaragua  Canal,  as  recommended  to  Congress  and  as 
favored  by  the  first  Walker  Commission,  provided  for  a 
lock  project  far  more  complex  than  the  proposition  now 
under  consideration. 

Colonel  Totten,  who  built  the  Panama  railroad,  recom- 
mended as  early  as  1857  the  construction  of  a  lock  canal; 
Naval  Commissioner  Lull,  who  made  a  careful  survey  of 

255 


Life  Insurance  and  Other  Subjects 

the  Isthmus  in  1874,  recommended  a  lock  canal  with  a  sum- 
mit level  of  124  feet  and  with  24  locks.  Admiral  Ammen, 
who,  by  authority  of  the  Secretary  of  War,  attended  the 
Isthmian  Congress  of  1879,  favored  a  lock  project,  in  strong 
opposition  to  the  visionary  plan  of  De  Lesseps.  Admiral 
Selfridge  and  many  other  naval  officers  who  have  been 
connected  with  Isthmian  surveying  and  exploration  have 
never,  to  my  knowledge,  by  as  much  as  a  word  expressed 
their  apprehensions  regarding  the  feasibility  or  practica- 
bility of  a  lock  canal. 

As  a  matter  of  fact  and  canal  history,  the  lock  project 
has  very  properly  been  considered  "  an  American  concep- 
tion of  the  proper  treatment  of  the  Panama  canal  problem." 
Mr.  C.  D.  Ward,  an  American  engineer  of  great  ability,  as 
early  as  1879,  suggested  a  plan  almost  identical  with  the  one 
now  recommended  by  the  minority  of  the  Consulting  Board, 
including  a  dam  at  Gatun,  instead  of  Bohio  or  Gamboa; 
and,  in  the  words  of  a  former  president  of  the  American 
Society  of  Civil  Engineers,  Mr.  Welsh,  "The  first  thought  of 
an  American  engineer  on  looking  at  M.  De  Lesseps'  raised 
map  is  to  convert  the  valley  of  the  lower  Chagres  into  an 
artificial  lake  some  twenty  miles  long  by  a  dam  across  the 
valley  at  or  near  a  point  where  the  proposed  canal  strikes 
it,  a  few  miles  from  Colon,  such  as  was  advocated  by  C.  D. 
Ward  in  1879."  The  site  referred  to  was  Gatun,  and  this 
was  written  in  1880,  when  the  sea-level  project  had  full  sway. 

So  that  it  is  going  entirely  too  far  to  say  that  all  naval 
commanders  and  commercial  masters  are  in  favor  of  the 
sea-level  project.  Admiral  Walker  himself,  as  president 
of  the  former  Isthmian  Commission,  and  as  president  of 
the  Nicaraguan  Board,  favored  a  lock  canal.  Eminent 
army  engineers,  like  Abbot,  Hains,  Ernst,  and  others,  favor 
the  lock  project.  It  requires  no  very  extensive  knowledge  of 
navigation  to  make  it  clear  that  passing  through  a  waterway 
which  for  35  miles,  or  71  per  cent,  of  its  distance,  will  have 

2j6 


The  American  Type  of  Isthmian  Canal 

a  width  of  500  feet  or  more,  compared  with  one  which,  for 
the  larger  part,  or  for  some  forty-one  miles,  will  have  a  width 
of  only  200  feet  or  less,  must  appeal  to  the  sense  of  security 
of  the  skipper  while  taking  his  vessel  through  the  canal. 

But  it  is  a  question  of  general  principles,  and  not  of  per- 
sonal preference.  Our  concern  is  with  a  matter  of  fact,  and 
not  with  a  theory.  No  ship-owner  on  the  Great  Lakes  con- 
siders it  a  serious  hindrance  to  navigation  for  vessels  to  pass 
through  the  lock  of  the  "Soo"  Canal;  no  shipper  running 
1,000-ton  barges  through  the  future  Erie  Canal  will  have  the 
least  apprehension  of  danger  or  destruction;  no  captain  navi- 
gating a  vessel  or  boat  through  the  proposed  deep  waterway 
from  the  ocean  to  the  Lakes  will  hesitate  to  pass  through  locks 
with  a  proposed  lift  of  over  forty  feet.  These  apprehensions 
are  imaginary  and  not  real.  They  are  not  derived  from 
experience  or  from  a  summary  statement  of  shipmasters 
and  naval  officers,  but  from  the  individual  expressions  and 
prejudice  of  a  few  who  are  opposed  to  the  lock  project.  I  am 
confident  that  if  the  matter  is  left  to  the  practical  navigator, 
to  the  ship-owner,  and  to  the  self-reliant  naval  officer,  there 
will  be  no  serious  disagreement  with  the  opinion  that  a  lock 
canal,  which  can  be  built  within  a  reasonable  period  of 
time,  is  preferable  to  any  sea-level  canal  which  may  be  built 
and  opened  to  navigation  twenty  years  hence  or  later. 

There  are  two  objections  made  by  the  majority  of  the 
Senate  committee  against  a  lock  canal  which  require  more 
extended  consideration.  These  are,  the  protection  of  the 
canal  in  case  of  war  and  the  danger  of  serious  injury  or  total 
destruction  by  possible  earth  movements  or  so-called  "earth- 
quakes." Regarding  the  military  aspects  of  the  canal  prob- 
lem, the  majority  of  the  Senate  committee  say: 

The  Spooner  act  and  the  Hay-Varilla  treaty  contemplated  the  fortification 
and  military  protection  of  the  canal  route.  No  proposition  affecting  this  policy 
is  now  before  the  Senate.  In  so  far  as  the  type  of  canal  to  be  adopted  has  a  bear- 
ing upon  the  jeopardy  to  or  immunity  of  the  canal  from  risk  of  malicious  injury,  the 
subject  of  safety  and  protection  is  pertinent  and  most  important.     If  a  canal  of  one 

257 


Life  Insurance  and  Other  Subjects 

type  would  be  more  liable  to  injury  than  another,  this  liability  should  under  no 
circumstances  be  neglected  in  determining  the  type  or  plan.  It  does  not  require 
argument  that  the  use  of  the  canal  by  the  United  States  will  cease  if  the  control 
passes  to  a  hostile  power  between  which  and  the  United  States  a  state  of  war 
exists,  but  this  is  true  whatever  the  type  may  be. 

As  the  majority  of  the  committee  point  out,  "no  proposi- 
tion affecting  this  project  is  now  before  the  Senate."  In 
my  opinion,  none  is  necessary.  The  neutrality  of  the  canal 
is,  by  implication  at  least,  assured,  and  we  have  pledged 
our  national  good  faith  that  the  waterway  will  be  open  to 
all  the  nations  of  the  world.  Some  time  in  the  future,  when 
the  canal  is  completed  and  an  accepted  fact,  it  may  be  ad- 
visable to  adopt  the  course  pursued  in  the  case  of  the  Suez 
Canal.  The  original  concession  for  that  canal  provided,  by 
section  3,  for  its  subsequent  fortification,  but  this  was  never 
carried  into  effect.  By  a  convention  dated  December  22, 
1888,  among  Great  Britain,  Germany,  and  other  nations, 
the  free  navigation  of  the  Suez  Canal  was  made  a  matter  of 
international  agreement,  and  the  same  has  been  reprinted 
as  Senate  Document  No.  151,  Fifty-sixth  Congress,  first 
session,  under  date  of  February  6,  1900. 

This,  in  any  event,  is  a  problem  of  the  future.  The  canal 
is  the  property  of  the  United  States,  and  we  shall  always  re- 
tain control.  In  the  event  of  war  we  shall  rely  with  confi- 
dence upon  our  navy  to  protect  our  interests  on  the  Pacific 
and  in  the  Caribbean  Sea,  but  even  more  may  we  rely  upon 
the  all-important  fact  that  it  could  never  be  to  the  interest 
of  any  other  nation  sufficient  in  size  to  be  at  war  with  us  to 
destroy  this  international  waterway,  which  will  become  an 
important  necessity  to  the  commerce  of  each  and  all.  No 
neutral  nation  engaged  in  extensive  commerce  or  trade 
would  for  an  instant  allow  another  nation  at  war  with  the 
United  States  to  injure  or  destroy  the  canal  or  to  seriously 
interfere  with  the  traffic  passing  through  it.  To  destroy 
as  much  as  a  single  lock,  to  injure  as  much  as  a  single 
gate,  would  be  considered  equal  to  an  act  of  war  by  every 

*5* 


The  American  Type  of  Isthmian  Canal 

commercial  nation  of  the  earth.  In  this  simple  fact  lies  a 
greater  assurance  of  safety  than  in  all  the  treaties  which 
might  be  made  or  in  all  the  fortifications  which  might  be 
established  to  protect  the  canal. 

The  majority  of  the  committee  well  say  in  their  report, 
that  the  power  of  mischief  "is  within  easy  reach  of  all."  The 
possibility  of  an  assumed  occurrence  is  very  remote  from  its 
reasonable  probability.  We  have  to  rely  upon  our  own  good 
faith  and  the  watchful  eyes  of  our  officers.  Against  possible 
contingencies,  such  as  are  implied  in  the  assumed  destruc- 
tion of  the  locks  by  dynamite  or  other  high  explosives,  we 
can  do  no  more  than  take  the  same  precautions  which  we 
take  in  all  other  matters  of  national  importance.  We  have 
to  take  our  chances  the  same  as  any  other  nation  would; 
the  same  as  commercial  enterprise  would.  Certainly  the 
remote  possibility  of  such  an  event,  the  still  more  remote 
contingency  that  the  injury  would  be  serious  or  fatal  to  the 
operation  of  the  canal,  should  not  govern  in  a  decision  to 
construct  a  canal  for  the  use  of  the  present  generation  rather 
than  for  the  generations  to  come.  No  canal  can  be  built  free 
from  vulnerable  points;  no  forts,  no  battleships,  can  be  built 
free  from  such  a  risk.  It  would  be  folly  to  delay  the  con- 
struction of  a  canal;  it  would  be  folly  to  sink  a  hundred 
million  dollars  or  more  upon  so  remote  a  contingency  as 
this,  which  belongs  to  the  realm  of  fanciful  or  morbid  imagi- 
nation rather  than  to  the  domain  of  substantial  fact  and 
actual  experience. 

As  a  last  resort,  the  opposition  to  a  lock  canal  brings  for- 
ward the  earthquake  argument.  It  is  a  curious  reminder 
of  the  early  and  bitter  opposition  to  the  building  of  the  Suez 
Canal;  its  enemies  had  to  fall  back  upon  the  absurd  theory 
that  the  canal  would  prove  a  failure  because  the  blowing 
sands  of  the  desert  would  soon  fill  the  channel.  It  was  seri- 
ously proposed  to  erect  a  stone  wall  four  feet  high  on  each 
side  of  the  embankment  to  provide  against  this  imaginary 

259 


Life  Insurance  and  Other  Subjects 

danger  to  the  canal.  Another  early  objection  to  the  Suez 
Canal  was  that  the  Red  Sea  level  was  30  feet  above  the 
level  of  the  Mediterranean,  only  set  at  rest  in  1847  by  a 
special  commission,  which  included  Mr.  Robert  Stephenson, 
the  great  son  of  a  great  father,  bitter  to  the  last  in  his 
opposition  to  the  canal,  which  he  considered  an  imprac- 
ticable engineering  scheme.  There  was  much  talk  about 
the  assumed  prevalence  of  strong  westerly  winds  on  the 
southern  Mediterranean  coast,  and  the  danger  of  constantly 
increasing  deposits  of  the  Nile,  it  was  said,  would  render 
the  establishment  of  a  port  impossible.  It  was  necessary 
to  place  a  war-ship  for  a  whole  winter  at  anchor  three 
miles  from  the  shore  to  prove  the  error  of  this  assumption 
and  set  at  rest  a  foolish  rumor  which  came  near  proving 
fatal  to  the  enterprise. 

Earthquakes  have  occurred  on  the  Isthmus,  and  there 
is  record  of  one  shock  of  some  consequence  in  1882.  The 
matter  has  been  inquired  into  in  a  general  way  by  the  various 
Isthmian  commissions,  and  assumed  some  prominence  dur- 
ing the  discussions  and  debates  regarding  a  choice  of  routes. 
It  was  plain  to  even  the  least  informed  that  the  volcanic  belt 
of  Nicaragua  constituted  a  real  menace  to  a  canal  in  that 
region;  and  one  of  the  strongest  arguments  advanced  in  the 
minority  report  of  the  Senate  committee  of  1902,  submitted 
by  Senator  Kittredge,  now  a  leading  advocate  of  the  sea- 
level  project,  in  opposition  to  the  Nicaragua  Canal,  was  the 
assertion  of  the  practical  freedom  of  the  Panama  Isthmus 
from  the  danger  of  earth  movements. 

The  minority  of  the  Senate  committee  of  1902  in  their 
report,  summing  up  the  final  reasons  in  favor  of  the  Panama 
route  (section  12),  said: 

At  Panama  earthquakes  are  few  and  unimportant,  while  the  Nicaraguan 
route  passes  over  a  well-known  coastal  weakness.  Only  five  disturbances  of  any 
sort  were  recorded  at  Panama,  all  very  slight,  while  similar  official  records  at  San 
Jose  de  Costa  Rica,  near  the  route  of  the  Nicaragua  Canal,  show  for  the  same 
period  fifty  shocks,  a  number  of  which  were  severe.  (P.  11,  S.  Rep.  783,  part  2, 
57th  Cong.,  1st  session,  May  31,  1902.) 

260 


The  American  Type  of  Isthmian  Canal 
In  another  part  of  their  report  the  committee  said : 

With  the  dreadful  lessons  of  Martinique  and  St.  Vincent  fresh  in  our  minds, 
we  should  be  utterly  inexcusable  if  we  deliberately  selected  a  route  for  an  Isthmian 
canal  in  a  region  so  volcanic  and  dangerous,  when  a  route  is  open  to  us  which  is 
exposed  to  none  of  these  dangers  and  is  in  every  other  respect  more  advantageous. 

And  they  quote  Professor  Heilprin,  an  authority  on  the 
subject,  in  part,  as  follows: 

It  has,  however,  been  known  for  a  full  quarter  of  a  century  that  the  main 
Andes  do  not  traverse  the  Isthmus  of  Panama,  and  that  there  are  no  active  or  re- 
cently decayed  volcanoes  in  any  part  of  the  Isthmus.  So  far,  however,  as  danger 
from  direct  volcanic  contacts  is  concerned,  the  Panama  route  is  exempt.  (Pp.  22- 
23.) 

And  further: 

This  district  represents  the  most  stable  portion  of  Central  America.  No  vol- 
canic eruptions  have  occurred  there  since  the  end  of  the  Miocene  epoch,  and  there 
are  no  active  volcanoes  between  Chiriqui  and  Tolima,  a  distance  of  about  four 
hundred  miles.  Such  earthquakes  as  have  occurred  are  chiefly  those  proceeding 
from  the  disturbed  districts  on  either  hand,  with  intensity  much  diminished  by  the 
distance  traversed.     The  canal  lies  in  a  sort  of  dead  angle  of  comparative  safety. 

The  report  continues: 

The  situation  being,  then,  that  the  danger  from  volcanoes  at  Panama  is  noth- 
ing, and  that  from  earthquakes  practically  nothing,  while  at  Nicaragua  the  canal 
would  be  situated  in  one  of  the  most  dangerous  regions  of  the  world  from  both 
these  causes,  the  question  should  be  considered  settled. 

This  was  the  opinion  of  the  committee  of  1902;  it  was 
emphatic  and  plain  in  its  language;  it  had  considered  expert 
views  and  the  available  data.  It  had  before  it  the  full  report 
of  the  Nicaragua  Canal  Commission,  printed  under  date  of 
May  15th  of  the  same  year,  Chapter  VII  of  which  considers 
the  subject  at  much  greater  length  than  has  been  done  since 
that  time  and  with  a  full  knowledge  of  the  facts  and  free 
from  bias  or  prejudice.  With  the  then  recent  occurrence 
at  Mount  Pelee  in  mind,  and  with  a  full  understanding  of  the 
liability  of  the  Isthmus  to  seismic  shocks  of  minor  import- 
ance, the  committee  emphatically  indorsed  the  lock-canal 
project  at  Panama. 

Much  can  be  said  with  regard  to  this  matter,  and  it  is 
one  which  should,  and  no  doubt  will,  receive  the  most  care- 
ful consideration  of  the  engineers  in  charge  of  the  work. 

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Life  Insurance  and  Other  Subjects 

Seismic  disturbances  have  occurred  in  all  parts  of  the  world, 
and  they  have  occurred  at  Panama.  Where  they  are  not 
directly  of  volcanic  origin  they  appear  to  be  the  result  of 
subsidence  or  contraction  of  the  earth's  crust,  and  they  have 
occurred  and  caused  serious  destruction  far  from  centers  of 
volcanic  activity,  among  other  places,  at  Lisbon,  Portugal, 
and  at  Charleston,  S.  C.  Some  sections  of  the  earth,  as  for 
illustration  Japan  and  the  Philippines,  are  no  doubt  more 
subject  to  these  movements  than  others,  and  sections  sub- 
ject to  such  movements  at  one  period  of  time  may  be  ex- 
empt for  many  years  if  not  forever  thereafter. 

The  fearful  earthquake  which  affected  Charleston,  S.  C, 
in  1886  had  no  corresponding  precedent  in  that  section,  nor 
has  it  been  followed  by  a  similar  disturbance.  Regardless 
of  the  terrible  experience  of  1886,  the  government  has  now 
in  course  of  construction  at  Charleston  a  navy-yard,  and  a 
great  dry-dock,  costing  many  millions  of  dollars,  which  will  be 
operated  by  locks  or  gates,  and,  I  presume,  the  question  of 
earthquakes  or  earth  movements  has  not  been  raised  in  any 
of  the  reports  which  have  been  made  regarding  this  under- 
taking. Earthquakes  formerly  were  quite  frequent  in  New 
England,  and  they  extended  to  New  York  during  the  early 
years  of  our  history,  and  for  a  time  Boston  and  Newbury, 
Mass.,  Deerfield,  N.  H.,  and  particularly  East  Haddam, 
Conn.,  were  the  centers  of  seismic  activity,  which  by  inference 
might  be  used  as  an  argument  against  our  navy-yards  at 
Portsmouth,  N.  H.,  and  Charlestown,  Mass.,  our  torpedo 
station  at  Newport,  or  the  fortifications  at  Willets  Point. 
The  earthquake  which  destroyed  Lisbon  in  1755  might  with 
equal  propriety  be  used  as  an  argument  against  the  build- 
ing of  the  extensive  docks  and  fortifications  at  Gibraltar, 
but  no  one,  I  think,  has  ever  questioned  the  solidity  of 
the  Rock. 

Seismology  is  a  very  complex  branch  of  geologic  inquiry 
and  it  is  a  subject  regarding  which  very  little  of  determining 

262 


The  American  Type  of  Isthmian  Canal 

value  is  known.  Theories  have  been  advanced  that  under 
certain  geological  conditions  earth  movements  would  be 
comparatively  infrequent,  if  not  impossible.  Whether  such 
conditions  exist  at  Panama  would  have  to  be  determined 
by  the  investigations  of  qualified  experts.  It  would  seem, 
however,  from  such  data  as  are  available,  that  the  local  con- 
ditions are  decidedly  favorable  to  a  comparative  immunity 
of  this  region  from  serious  seismic  shocks,  at  least  such  as 
would  do  great  and  general  damage.  Nor  can  it  be  argued 
that  the  locks  and  dams  would  be  exposed  to  special  risk.  The 
earthquake  of  1882  did  more  or  less  damage,  but  the  reports 
are  of  a  very  fragmentary  character.  Newspaper  reports 
in  matters  of  this  kind  have  very  small  value.  Injury  was 
done  to  the  railway,  but  not  of  very  serious  consequence. 

If  the  risk  exists,  it  would  affect  equally  a  sea-level  canal, 
in  that  it  would  threaten  the  tidal  lock,  the  dam  at  Gamboa, 
and  the  excavation  through  Culebra  cut.  Very  little  is 
known  regarding  earthquake  motions,  and  there  are  very 
few  seismic  elements  which  are  really  calculable  in  conformity 
to  a  mathematical  theory  of  probability.  It  is  a  subject  which 
has  not  received  the  attention  in  this  country  of  which  it  is 
deserving,  but  enough  of  seismic  motion  is  known  to  war- 
rant the  conclusion  that  the  Senate  committee  of  1902  was, 
in  all  human  probability,  entirely  correct  when  it  made  light 
of  the  danger  of  the  probability  of  seismic  shocks  at  Panama. 

In  fine,  the  earthquake  argument  has  little  or  no  force 
against  a  lock-canal  project,  and  it  has  never  received  serious 
consideration  as  such  or  been  used  in  arguments  against  a 
lock  canal  until  the  recent  San  Francisco  disaster  brought 
the  subject  prominently  before  the  public.  It  is  a  danger 
as  remote  as  a  possible  destruction  of  the  proposed  terminal 
plants  at  Colon  and  Panama  by  flood  waves  equal  in  magni- 
tude to  the  one  which  destroyed  Galveston  in  1900,  but  such 
dangers  are  inherent  in  all  human  undertakings.  They 
must  be  taken  as  a  matter  of  chance  and  remote  possibility, 

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Life  Insurance  and  Other  Subjects 

which  for  all  present  purposes  may  be  left  out  of  account, 
except  that  the  subject  should  receive  the  due  consideration 
of  the  engineers  and  perhaps  be  made  a  matter  of  special 
and  comprehensive  inquiry  by  the  Geological  Survey.  In 
any  serious  consideration  of  the  facts  for  or  against  a  lock 
canal,  I  am  confident  that  the  earthquake  risk  may  safely 
be  ignored.  The  comprehensive  report  of  the  minority 
members  of  the  Senate  Committee  on  Interoceanic  Affairs 
is  a  sufficient  and  conclusive  answer  to  all  the  important 
points  which  are  in  controversy,  and  it  remains  for  Con- 
gress to  cut  the  "  Gordian  knot"  and  put  an  end  to  an 
interminable  discussion  of  much  solid  and  substantial  con- 
viction on  the  one  hand  and  of  a  vast  amount  of  opinion  and 
guesswork  on  the  other  hand.  All  of  the  evidence,  all  of 
the  supplementary  expert  testimony  which  may  be  obtained 
upon  the  merits  of  the  two  propositions,  will  not  change  the 
position  of  those  who  rest  their  conclusions  upon  American 
experience  and  upon  the  judgment  of  American  engineers, 
and  who  favor  a  lock  canal.  While  there  is  no  doubt  that 
such  a  canal  can  be  constructed  and  can  be  made  a  prac- 
ticable waterway,  there  is  a  very  serious  question  whether  a 
sea-level  canal  can  be  constructed  and  made  a  safe  and 
practicable  waterway,  at  least  within  the  limits  of  the  esti- 
mated amount  of  cost  and  within  the  estimated  time. 

The  view  which  I  have  tried  to  impress  upon  the  Senate 
is  nothing  more  nor  less  than  a  business  view  of  what  is,  for 
all  practical  purposes,  only  a  business  proposition.  If  a 
lock  canal  can  be  built,  useful  for  all  purposes,  at  half  the 
cost  and  within  half  the  time  of  a  sea-level  canal,  then  I  can 
come  to  no  other  conclusion  than  that  a  lock  canal  would  be 
decidedly  to  our  political  and  commercial  advantage.  A 
decision,  however,  should  be  arrived  at.  The  canal  project 
has  reached  a  stage  where  the  final  plan  or  type  must  be  de- 
termined, and  it  is  the  duty  of  Congress  to  act  and  to  fix,  for 
once  and  for  all  time,  the  type  of  canal,  with  the  same  cour- 

264. 


The  American  Type  of  Isthmian  Canal 

age  and  freedom  from  prejudice  or  bias  as  was  the  case  in 
the  decision  which  finally  fixed  the  route  by  way  of  Panama. 

Any  amount  of  additional  testimony  and  expert  opinion 
will  only  add  to  the  confusion  and  tend  to  produce  a  more 
hopeless  state  of  affairs.  Let  Congress  fix  the  type  in  broad 
outlines  and  leave  it  to  responsible  engineers  in  actual 
charge  to  solve  problems  in  detail,  and  to  adapt  themselves 
to  local  conditions  and  to  new  problems  which  in  the  course 
of  construction  are  certain  to  arise.  Let  us  take  counsel  of 
the  past,  most  of  all  from  the  experience  gained  in  the  con- 
struction of  the  Suez  Canal,  an  engineering  and  commercial 
success  which  challenges  the  admiration  of  the  world.  We 
know  how  near  it  came  to  utter  defeat  by  the  conflict  of 
opinion,  by  the  intrigue  of  conniving  and  jealous  powers, 
and  last,  but  not  least,  by  the  ill-founded  apprehensions 
and  fears  of  those  who  were  searching  the  vast  domain  of 
conjecture  and  remote  possibilities  for  arguments  to  cause 
a  temporary  delay  or  ultimate  abandonment. 

It  is  not  difficult  to  secure  the  opinion  of  eminent  authority 
for  or  against  any  project  when  the  facts  themselves  are  in  dis- 
pute, and  when  the  objects  and  aims  are  not  well  defined. 
The  great  Lord  Palmerston,  the  most  bitter  opponent  of  the 
Suez  Canal  scheme,  in  want  of  a  more  convincing  argument, 
seriously  claimed  that  France  would  send  soldiers  disguised 
as  workmen  to  the  Isthmus  of  Suez,  later  to  take  posses- 
sion of  Egypt  and  make  it  a  French  colony.  By  one  method 
or  another  Palmerston  tried  to  defeat  the  scheme  in  its  be- 
ginning and  to  bring  it  to  disaster  during  the  period  of  con- 
struction. It  is  a  far  from  creditable  story.  History 
always  more  or  less  repeats  itself,  whether  it  be  in  politics 
or  engineering  enterprise,  but  in  few  affairs  are  there  more 
convincing  parallels  than  in  the  canal  projects  of  Panama 
and  Suez.  Lord  Palmerston  and  Sir  Henry  Bulwer,  then 
the  ambassador  at  Constantinople,  did  all  in  their  power 
to  destroy  public  confidence  in  the  enterprise,  and  they  were 

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Life  Insurance  and  Other  Subjects 

completely  successful  in  preventing  English  investments 
in  the  stock  of  the  canal.* 

It  was  the  same  Sir  Henry  Bulwer  who,  in  1850,  suc- 
ceeded by  questionable  diplomatic  methods  in  foisting  upon 
the  American  people  a  treaty  which  was  contrary  to  their  best 
interests  and  which  for  half  a  century  was  a  hindrance  and 
barrier  to  an  American  Isthmian  canal.  We  owe  it  chiefly  to 
the  masterly  and  straightforward  statesmanship  of  the  late 
John  Hay  that  this  obstacle  to  our  progress  was  disposed  of 
to  the  entire  satisfaction  of  both  nations.  I  refer  to  these 
matters,  which  are  facts  of  history,  only  to  point  out  how 
an  interminable  discussion  of  matters  of  detail  is  certain  to 
delay  and  do  great  injury  to  projects  which  should  only 
receive  Congressional  consideration  in  broad  outlines  and 
upon  fundamental  principles.  If  we  are  to  enter  into  a  dis- 
cussion of  engineering  conflicts,  if  we  are  to  deliberate  upon 
mere  matters  of  structural  detail,  then  an  entire  session  of 
Congress  will  not  suffice  to  solve  all  the  problems  which 
will  arise  in  connection  with  that  enterprise  in  the  course  of 
time.  I  draw  attention  to  the  Suez  experience  solely  to 
point  out  the  error  of  taking  into  serious  account  minor  and 
far-fetched  objections  which  assume  an  undue  magnitude  in 
the  public  mind  when  they  are  presented  in  lurid  colors  of 
impending  disasters  to  a  national  enterprise  of  vast  extent 
and  importance. 

So  eminent  an  engineer  as  Mr.  Robert  Stephenson  by  his 
expert  opinion  deluded  the  British  people  into  the  belief  that 
the  Suez  Canal  would  not  be  practicable;  that,  even  if  com- 
pleted, it  would  be  nothing  but  a  stagnant  ditch.  Said  Pal- 
merston  to  De  Lesseps: 

All  the  engineers  of  Europe  might  say  what  they  pleased,  he  knew  more  than 
they  did,  and  his  opinion  would  never  change  one  iota,  and  he  would  oppose  the 
work  to  the  end. 

Stephenson  confirmed  this  view  and  held  that  the  canal 
would  never  be  completed  except  at  an  enormous  expense, 

*  The  Maritime  Canal  of  Suez,  from  its  inauguration,  November  17,  1869,  to  the  year  1884,  by 
Prof.  J.  E.  Nourse,  U.  S.  N.,  Washington,  1884  (Senate  Document  198,  48th  Congress,  1st  session). 

266 


The  American  Type  of  Isthmian  Canal 

too  great  to  warrant  any  expectation  of  return — a  judg- 
ment both  ill  advised  and  erroneous  as  was  clearly  proved 
by  subsequent  events.  I  need  only  say  that  the  Suez  Canal  is 
to-day  an  extremely  profitable  waterway,  and  that  although 
the  work  was  commenced  and  brought  to  completion  without 
a  single  English  shilling,  through  French  enterprise  and  upon 
the  judgment  of  French  engineers,  it  was  only  a  compar- 
atively few  years  later  when,  as  a  matter  of  necessity  and 
logical  sequence,  the  controlling  interest  in  the  canal  was 
purchased  by  the  English  government,  which  has  since  made 
of  that  waterway  the  most  extensive  use  for  purposes  of 
peace  and  of  war. 

These  are  the  facts  of  history,  and  they  are  not  disputed. 
Shall  history  repeat  itself?  Shall  we  delay  or  miscarry  in  our 
efforts  to  complete  a  canal  across  the  Isthmus  of  Panama 
upon  similar  pretensions  of  assumed  dangers  and  possi- 
bilities of  disaster,  all  more  or  less  the  result  of  engineer- 
ing guesswork  ?  Shall  we  take  fright  at  the  talk  about  the 
mischief-maker  with  his  stick  of  dynamite,  bent  upon  the 
destruction  of  the  locks  and  the  vital  parts  of  the  machinery, 
when  history  has  its  parallel  during  the  Suez  Canal  agita- 
tion in  "the  Arab  shepherd,  who,  flushed  with  the  opportu- 
nity for  mischief  and  with  a  few  strokes  of  a  pickax,  could 
empty  the  canal  in  a  few  minutes"  ?  Shall  we  be  swayed 
by  foolish  fears  and  apprehensions  of  earthquakes  or  tidal 
waves,  and  waste  millions  of  money  and  years  of  time  upon 
a  pure  conjecture,  a  pure  theory  deduced  from  fragmentary 
facts  ?  Again  the  facts  of  canal  history  furnish  the  parallel 
of  Stephenson  and  other  engineers,  who  successfully  fright- 
ened English  investors  out  of  the  Suez  enterprise  by  the  state- 
ment that  the  canal  would  soon  fill  up  with  the  moving  sands 
of  the  desert,  that  one  of  the  lakes  through  which  the  canal 
would  pass  would  soon  fill  up  with  salt,  that  navigation  of 
the  Red  Sea  would  be  too  dangerous  and  difficult,  that  ships 
would   fear  to  approach   Port  Said   because  of  dangerous 

26y 


Life  Insurance  and  Other  Subjects 

seas,  and,  finally,  that  in  any  event  it  would  be  impossible 
to  keep  the  passage  open  to  the  Mediterranean. 

It  was  this  kind  of  guesswork  and  conjecture  which  was 
advanced  as  an  argument  by  engineers  of  eminence  and  sus- 
tained by  one  of  the  foremost  statesmen  of  the  century.  How 
absurd  it  all  seems  now  in  the  sunlight  of  history!  The  Pan- 
ama Canal  is  a  business  enterprise,  even  if  carried  on  by  the 
nation,  and  with  a  thorough  knowledge  of  the  general  facts 
and  principles  we  require  no  more  expert  evidence,  so-called, 
nor  additional  volumes  of  engineering  testimony.  The  nation 
is  committed  to  the  construction  of  a  canal.  The  enterprise 
is  one  of  imperative  necessity  to  commerce,  navigation,  and 
national  defense,  and  any  further  discussion,  any  needless 
waste  of  time  and  money,  is  little  short  of  indifference  to 
the  national  interests  and  objects  which  are  at  stake. 

Of  objections  to  either  plan  there  is  no  end,  and  there 
will  be  no  end  as  long  as  the  subject  remains  open  for  dis- 
cussion. To  answer  such  objections  in  detail,  to  search 
the  records  for  proof  in  support  of  one  theory  or  another, 
is  a  mere  waste  of  time  which  can  lead  to  no  possible  useful 
result.  Among  others,  for  illustration,  there  has  been  placed 
before  us  a  letter  from  the  chief  engineer  of  the  Manchester 
Ship  Canal,  who  is  emphatically  in  favor  of  a  sea-level  water- 
way. It  would  have  been  much  more  interesting  and  much 
more  valuable  to  the  members  of  Congress  to  have  received 
from  Mr.  Hunter  a  statement  as  to  why  he  should  have 
changed  his  opinions;  or  why,  in  1898,  he  should  have  signed 
the  unanimous  report  of  the  technical  commission  in  favor 
of  a  lock  canal,  while  now  he  so  emphatically  sustains  those 
who  favor  the  sea-level  project.  It  is  not  going  too  far  to  say, 
appealing  to  the  facts  of  history,  that  Mr.  Hunter  may  be 
seriously  in  error  in  this  matter  and  may  have  drawn  upon 
his  imagination  rather  than  upon  his  engineering  experience, 
the  same  as  Mr.  Robert  Stephenson  was  in  serious  error  in 
his  bitter  opposition  to  the  canal  enterprise  at  Suez. 

268 


The  American  Type  of  Isthmian  Canal 

Mr.  Hunter,  in  his  letter,  argues,  among  other  points, 
that  the  lifts  of  the  proposed  locks  would  be  without  precedent. 
Without  precedent  ?  Why,  of  course,  they  would  be  without 
precedent.  Is  not  practically  every  large  American  engineering 
enterprise  without  precedent  ?  Was  not  the  Erie  Canal, 
completed  in  1825,  without  precedent?  Were  not  the  first 
steamboat  and  the  first  locomotive  without  precedent  ? 
Were  not  the  Hoosac  Tunnel  and  the  Brooklyn  Bridge  feats 
of  American  engineering  enterprise  without  precedent? 

Without  precedent  is  the  great  barge  canal  which  the 
State  of  New  York  is  about  to  build,  which  will  mean  a  com- 
plete reconstruction  of  the  existing  waterway  which  connects 
the  ocean  with  the  Great  Lakes.* 

All  this  is  without  precedent.  But  it  is  American.  It 
is  progress,  and  takes  the  necessary  risk  to  leave  the  world 
better,  at  least  in  a  material  way,  than  we  found  it.  In  the 
proposed  deep  waterway,  which  is  certain  some  day  to  be 
built  to  connect  the  uttermost  ends  of  the  Great  Lakes  with 
tide-water  on  the  Atlantic,  able  and  competent  engineers  of 
the  largest  experience  have  designed  locks  with  a  lift  of  52 
feet.f  That  will  be  without  precedent.  On  the  Oswego 
Ganal,  proposed  as  a  part  of  the  new  barge  canal  of  the  State 
of  New  York,  there  will  be  six  locks,  two  of  which  will  each 
have  a  lift  of  28  feet,^  and  that  will  be  without  precedent,  but 
neither  dangerous  nor  detrimental  to  navigation  interests. 

Need  I  further  appeal  to  the  facts  of  past  canal  history  ? 
Is  it  necessary  to  recite  one  of  the  best  known  and  most  honor- 
able chapters  in  the  history  of  inland  waterways — I  mean  the 
problems  and  difficulties  inherent  in  the  great  project  of  con- 
structing the  canal  of  Languedoc,  or  "Canal  du  Midi," 
which  forms  a  water  communication  between  the  Mediter- 
ranean and  the  Garonne  and  between  the  Garonne  and  the 

*  For  a  history  of  American  canal  building  enterprises  see  History  of  New  York  Canals,  ch.  5. 

t  Report  of  the  Board  of  Engineers  on  Deep  Waterways,  H.  of  R.,  Doc.  No.  149,  56th  Congress, 
2d  session.  Atlas. 

X  History  of  New  York  Canals,  Appendix  L,  Annual  Report  of  the  State  Engineer  and  Surveyor, 
toI.  II,  Albany,  N.  Y.,  1905. 

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Life  Insurance  and  Other  Subjects 

Atlantic  Ocean,  one  of  the  best  known  canals  in  France  and 
in  the  world  ?  Need  I  refer  to  that  pathetic  story  of  its  chief 
engineer,  Riquet,  one  of  the  greatest  of  French  patriots,  who, 
in  his  abiding  faith  in  this  great  engineering  feat,  stood  practi- 
cally alone  ?  Need  I  recall  that  he  met  with  scant  assistance 
from  the  government,  with  the  most  strenuous  opposition 
from  his  countrymen;  that  he  was  treated  even  as  a  madman, 
and  that  he  died  of  a  broken  heart  before  the  great  work 
was  finished  ? 

That  canal  stands  to-day  as  an  engineering  masterwork 
and  as  a  most  suggestive  illustration  of  man's  ingenuity  and 
power  to  overcome  apparently  insuperable  natural  obstacles. 
It  has  been  in  existence  and  successful  operation,  I  think, 
since  1681.  For  a  sixth  part  of  its  distance  it  is  carried  over 
mountains  deeply  excavated.  It  has,  I  think,  ninety-nine 
locks  and  viaducts,  and  as  one  of  its  most  wonderful  features 
it  has  an  octuple  lock,  or  eight  locks  in  flight,  like  a  ladder 
from  the  top  of  a  cliff  to  the  valley  below.  If  in  1681  a 
French  engineer  had  the  ability  and  the  daring  to  conceive 
and  construct  an  octuple  lock,  will  any  one  maintain  that 
more  than  two  hundred  years  later,  with  all  the  enormous 
advance  in  engineering,  with  a  better  knowledge  of  hydrau- 
lics and  a  more  perfect  method  of  transportation  and  hand- 
ling of  materials — will  any  one  maintain  that  we  are  not 
to-day  competent  to  construct  successfully  a  lock  canal  such 
as  is  proposed  to  be  built  at  Panama  upon  the  judgment 
of  American  engineers  ? 

Mr.  President,  the  overshadowing  importance  of  the  sub- 
ject has  led  me  to  extend  my  remarks  far  beyond  my  original 
intention.  I  express  my  strong  convictions  in  favor  of  a 
lock  canal  and  of  the  necessity  for  an  early  and  specific  dec- 
laration of  Congress  regarding  the  final  plan  or  type  of 
canal  which  the  nation  wants  to  have  built  at  Panama.  I  am 
confident  that  it  lies  entirely  within  our  power  and  means  to 
build  either  type  of  waterway;  that  our  engineering  skill  can 

270 


The  American  Type  of  Isthmian  Canal 

successfully  solve  the  technical  problems  involved  in  either 
the  lock  or  the  sea-level  plan ;  but  there  is  one  all-important 
factor  which  controls,  and  which,  in  my  opinion,  should 
have  more  weight  than  any  other,  and  that  is  the  element  of 
time.  If  I  could  advance  no  other  reasons,  if  I  knew  of  no 
better  argument  in  favor  of  a  lock  canal,  my  convictions  would 
sustain  the  project  which  can  be  completed  within  a  meas- 
urable distance  of  years  and  for  the  benefit  and  to  the  ad- 
vantage of  the  present  generation.  Time  flies,  and  the  years 
pass  rapidly.  Shall  this  project  languish  and  linger  and 
become  the  spoil  of  political  controversy  and  a  subject  of 
political  attack  ?  Can  we  conceive  of  anything  more  likely 
to  prove  disastrous  to  the  canal  project  than  political  strife, 
which  proved  the  undoing  of  the  French  canal  enterprise 
at  Panama  ? 

Shall  the  success  of  this  great  project  be  imperiled  by  the 
possible  changes  in  the  fortunes  of  parties  ?  Shall  we  incur 
the  risk  that  changes  in  economic  conditions,  hard  times, 
or  panic  and  industrial  depressions  may  bring  about  ? 
Time  flies,  and  in  the  progress  of  industry  and  commerce, 
in  international  competition  and  the  growth  of  modern 
nations,  no  factor  is  of  more  supreme  importance  than  the 
years,  with  new  opportunities  for  political  and  commercial 
development.  Shall  we,  then,  neglect  our  chances  ?  Shall 
we  fail  to  make  the  most  of  this  the  greatest  opportunity 
for  the  extension  of  our  commerce  and  navigation  into  the 
most  distant  seas  which  will  ever  come  to  us  in  our  history, 
because  of  the  demands  of  idealists,  who,  with  theoretical 
notions  of  the  ultimately  desirable,  would  deprive  the  nation 
and  the  world  of  what  is  necessary  and  indispensable  to 
those  who  are  living  now  ? 

Vast  commercial  and  political  consequences  will  follow 
the  opening  of  the  transisthmian  waterway.  In  the  annals  of 
commerce  and  navigation  it  is  not  conceivable  that  there  will 
ever  be  a  greater  event  or  one  fraught  with  more  momentous 

27i 


Life  Insurance  and  Other  Subjects 

consequences  than  uninterrupted  navigation  between  the 
Atlantic  and  the  Pacific.  Little  enough  can  we  comprehend 
or  anticipate  what  the  far-distant  future  will  bring  forth, 
but  this  much  we  know — that  it  is  our  duty  to  solve  the 
problems  of  to-day  and  not  to  indulge  in  dreams  and  fancies 
in  a  vain  effort  to  solve  the  problems  of  a  far-distant  future. 

But  money  also  counts.  Can  we  defend  an  expenditure 
of  an  additional  $100,000,000  or  more  for  objects  so  remote, 
and  upon  a  basis  of  theory  and  fact  so  slender  and  so 
open  to  question,  when  a  plan  and  a  project  feasible  and 
practicable  is  before  us  which  will  meet  all  of  our  needs  and 
the  needs  of  generations  to  come  ?  Shall  we  disregard  in 
the  building  of  this  canal  every  principle  of  a  sound  national 
economy  and  commit  ourselves  to  an  enormous  waste  of 
funds  and  to  the  imposition  of  needless  burdens  upon  the 
taxpayers  of  this  nation  and  upon  the  commerce  of  the 
world  ?  At  least  $2,000,000  more  per  annum  will  be  required 
in  additional  interest  charges,  at  least  $100,000,000  more  will 
be  necessary  as  an  original  investment.  Do  we  fully  realize 
what  that  amount  of  money  would  do  if  applied  to  other 
national  purposes  and  projects  ? 

I  want  to  place  on  record  my  convictions  and  the  reasons 
governing  my  vote  in  favor  of  the  minority  report  for  a  lock 
canal  across  the  Isthmus  at  Panama.  I  entered  upon  an 
investigation  of  the  subject  without  prejudice  or  bias  and 
have  examined  the  facts  as  they  have  been  presented  and  as 
they  are  a  matter  of  record  and  of  history.  I  have  heard  or 
read  with  care  the  evidence  as  it  has  been  presented  by  the 
Board  of  Consulting  Engineers  and  the  vast  amount  of  oral 
testimony  before  the  Senate  Committee  on  Interoceanic 
Affairs.  I  am  confident  that  the  minority  judgment  is  the 
better  and  that  it  can  be  more  relied  upon,  because  it  is 
strictly  in  conformity  with  the  entire  history  of  the  Isthmian 
canal  project.  I  am  confident  that  the  objections  which  have 
been  raised  against  the  lock  plan  are  an  undue  exaggeration 

272 


The  American  Type  of  Isthmian  Canal 

of  difficulties  such  as  are  inherent  in  every  great  engineering 
project,  and  which,  I  have  not  the  slightest  doubt,  will  be 
successfully  solved  by  American  engineers,  in  the  light  of 
American  experience,  exactly  as  similar  difficulties  have 
been  solved  in  many  other  enterprises  of  great  magnitude. 

I  am  not  impressed  with  the  reasons  and  arguments  ad- 
vanced by  those  who  favor  the  sea-level  project,  for  they  do 
not  appeal  to  me  as  being  sound,  and  in  some  instances 
they  come  perilously  near  to  being  engineering  guesswork 
characteristic  of  the  earlier  enterprises  of  De  Lesseps.  I  can- 
not but  think  that  bias  and  prejudice  are  largely  responsible 
for  the  judgment  of  foreign  engineeers  so  pronounced  in 
favor  of  a  sea-level  project.  Furthermore,  I  am  entirely 
convinced  that  the  judgment  and  experience  of  American 
engineers  in  favor  of  a  lock  canal  may  be  relied  upon  with 
entire  confidence,  and  that  such  an  enterprise  will  be  brought 
to  a  successful  termination.  I  believe  that  in  a  national 
undertaking  of  this  kind,  fraught  with  the  gravest  possible 
political  and  commercial  consequences,  only  the  judgment 
of  our  own  people  should  govern,  for  the  protection  of  our 
own  interests,  which  are  primarily  at  stake.  I  also  prefer  to 
accept  the  view  and  convictions  of  the  members  of  the 
Isthmian  Commission,  and  of  its  chief  engineer,  a  man  of 
extraordinary  ability  and  large  experience. 

It  is  a  subject  upon  which  opinions  will  differ  and  upon 
which  honest  convictions  may  be  widely  at  variance,  but  in 
a  question  of  such  surpassing  importance  to  the  nation,  I, 
for  one,  shall  side  with  those  who  take  the  American  point 
of  view,  place  their  reliance  upon  American  experience,  and 
sh^w  their  faith  in  American  engineers. 


273 


Chapter  XII 


ABRAHAM     LINCOLN 

AND 

ALEXANDER     HAMILTON 


AN     ADDRESS 

DELIVERED     BEFORE     THE 

EAST    ORANGE,    N.    J.,    REPUBLICAN     CLUB 

FEBRUARY     12,     1904 


ABRAHAM    LINCOLN  AND  ALEXANDER 
HAMILTON 


)ew  occasions  teach  new  duties,  and  man's 
(thoughts  widen  with  the  progress  of  the  sun. 
[  While  problems  of  our  national  life  demand 
'for  their  satisfactory  solution  a  rigid  ad- 
herence to  the  fundamental  principles  of  the 
I  constitution,  in  the  light  of  new  occasions, 
.discoveries,  and  experiences  they  demand 
also  a  broad  interpretation  of  the  powers  it  confers  in  matters 
not  within  the  range  of  thought  and  action  a  century  ago. 
No  conceivable  position  in  public  life  can  be  thought  of  as 
more  trying,  no  test  of  character  and  human  energy  more 
severe,  than  the  stress  and  strain  of  the  great  questions 
which  in  his  administration,  from  the  day  of  his  inaugu- 
ration to  the  hour  of  his  untimely  death,  confronted  the 
heroic  man  whose  memory  we  celebrate   to-night. 

Lincoln  will  always  stand  as  the  supreme  type  of  human 
courage — of  faith  in  God  and  in  himself.  Long  before  he 
became  President  he  had  fought  the  battle  of  conscience  and 
made  his  choice  of  right  principles  against  political  sophistry 
and  the  seductive  views  of  the  doctrine  of  selfish  expediency. 
Little  did  it  matter  to  him  that  he  lost  the  senatorship  in  his 
contest  with  Douglas;  his  thought  was  upon  the  final  result 
— the  mighty  issues  upon  which  hung  the  destiny  of  the  re- 
public. He  was  sure  of  himself,  of  his  position,  of  his  prin- 
ciples. To  him  there  was  but  one  nation,  and  no  casuistry 
could  move  him,  no  expediency  could  swerve  him,  no  self- 
interest  could  divert  him  from  the  course  which,  taking  coun- 
sel alone  of  God  and  his  own  conscience,  he  had  determined 
to  follow.  "Let  us  have  faith,"  he  said,  in  ending  his  debates 
with  Douglas,  "that  right  makes  might,  and  in  that  faith 
let  us  to  the  end  dare  to  do  our  duty  as  we  understand  it." 
Lincoln  never  looked  backward.     His  faith  was  of  the 


277 


Life  Insurance  and  Other  Subjects 

future  and  his  concern  was  the  duty  of  the  hour.  He  had 
the  almost  superhuman  faculty  of  putting  disaster  behind 
him  and  of  applying  his  whole  force  to  the  needs  of  the 
moment.  During  all  the  trying  days  of  the  Rebellion,  his 
faith  and  hope  in  ultimate  victory  and  his  trust  in  God's 
providence  never  for  once  deserted  him. 

Let  us  on  this  anniversary  of  his  birth  take  to  heart  the 
three  fundamental  laws  of  his  life — sincerity  of  thought, 
courage  in  action,  and  a  firm  faith  in  the  future.  The  Re- 
publican party  was  formed  primarily  for  the  purpose  of  pre- 
venting the  extension  of  slavery  into  the  territories,  but,  in 
the  words  of  Senator  Hoar,  "the  providence  of  God  imposed 
upon  it  far  larger  duties."  It  has  done  for  the  people  what 
in  the  judgment  of  wise  and  trusted  men  was  best  for  our 
welfare,  what  was  necessary  to  maintain  the  strength  and 
the  dignity  of  the  United  States  at  home  and  abroad,  and 
what  experience  has  proven  most  efficacious  in  advancing 
the  moral  and  material  well-being  of  every  element  of  our 
population.  New  conditions  have  demanded  new  functions 
for  the  effective  conduct  of  the  nation's  business  and  new 
laws  to  regulate  the  predestined  expansion  of  American  in- 
fluence and  diplomacy.  Development  in  all  that  is  most 
beneficent,  with  unfaltering  courage,  has  been  the  policy  of 
the  Republican  party  from  its  birth  down  to  this  day;  de- 
velopment not  in  one  direction  only,  but  in  all  directions;  not 
in  a  limited  way,  making  for  the  advantage  of  some  particular 
class  or  section,  but  in  the  widest  possible  sense,  making  for 
a  more  general  distribution  of  wealth  and  a  higher  standard 
of  life  and  living  among  all.  This  conception  of  national 
betterment,  in  the  words  of  the  late  President  McKinley, 
"is  the  real  question  in  its  comprehensive  view.  It  touches 
the  health  and  progress  of  the  republic,  for  it  touches  the  con- 
dition— moral,  physical,  and  intellectual — of  the  citizen,  from 
which  it  must  draw  its  force  and  character  and  strength." 
It  is  to  the  glory  of  the  Republican  party  that  while  it  made 

278 


Abraham  Lincoln  and  Alexander  Hamilton 

possible  the  preservation  of  the  Union,  it  has  made  equally 
possible  the  highest  development  of  the  Union  in  its  internal 
affairs  and  external  relations.  It  has  made  the  United  States 
the  foremost  manufacturing  and  agricultural  nation,  it  has 
developed  upon  a  sound  and  honest  basis  a  system  of  national 
finance  and  banking;  it  has  adjusted  its  fiscal  policy  to 
economic  laws  and  social  conditions,  promoting  the  indi- 
vidual welfare,  increasing  the  individual  earnings  and  possi- 
bilities on  the  part  of  every  one  enjoying  the  privilege  of 
citizenship  and  life  in  this  great  republic.  To-day  our  flag 
is  a  most  potential  emblem  of  the  power  that  makes  for 
peace  and  progress  in  every  corner  of  the  earth. 

We  may  take  a  pardonable  pride  in  our  recent  national 
achievements.  Our  progress  in  population,  in  wealth,  in 
industry,  challenges  the  admiration  of  the  world.  We  are 
now  a  nation  of  eighty  millions  of  people,  widely  different 
in  their  origin,  many  of  whom  have  come  from  distant  shores 
to  find  an  asylum  and  better  possibilities  in  this  land  of  politi- 
cal and  economic  freedom,  but  all  imbued  with  the  spirit  of 
being  integral  factors  in  its  further  growth  and  development. 
No  one,  I  am  sure,  doubts  for  a  moment  that  if  another 
national  call  to  arms  were  issued,  in  full  proportion  to  their 
numbers,  the  young,  the  middle-aged,  and  even  the  old 
would  respond  to  the  call  of  duty  to  preserve  the  republic  and 
to  maintain  the  laws.  However  great  our  satisfaction  may  be 
with  the  material  progress  which  has  been  made  within  recent 
years,  we  have  more  reason  to  be  proud  of  the  advancement  in 
knowledge  and  understanding,  in  the  mode  of  life  and  morals 
of  the  people,  never  so  contented,  never  so  temperate,  never 
so  sound  in  health  and  mind  as  they  are  to-day.  It  needs 
only  a  glance  at  the  state  of  our  farms  and  factories,  at  the 
condition  of  the  poor  and  at  the  returns  of  pauperism  and  de- 
pendency, to  convince  even  the  most  skeptical  that  the  prog- 
ress of  this  nation  has  been  real  and  not  apparent,  has,  in 
fact,  been  profound  and  of  benefit  to  all.     Never  in  all  the 

279 


Life  Insurance  and  Other  Subjects 

world's  history  has  there  been  a  nation  like  ours,  as  well 
governed  as  ours,  as  thoroughly  developed  as  ours  in  the 
arts  of  peace  and  yet  fully  prepared  to  sustain  the  victories 
of  peace  in  the  field  of  war.  For  much  of  this  we  are  in- 
debted to  the  spirit  of  Lincoln,  ever  dominant  in  the  Repub- 
lican party,  which  in  its  measures  and  its  men  may  safely 
claim  to  be  representative  of  what  is  best,  what  is  highest 
and  what  is  truest  in  the  people  of  this  land. 

We  are  not  to-day  confronted  by  the  serious  questions 
of  Lincoln's  time;  there  is  no  danger  to-day  of  national  dis- 
integration, and  there  is  no  cloud  on  the  horizon  which 
threatens  our  national  peace.  More  than  ever  we  are  a 
people  united  in  thought  and  action,  following  the  arts  and 
industries  which  make  possible  a  more  complete  realization 
of  the  purposes  of  life.  Great  questions  indeed  confront 
us,  which,  for  their  happy  solution,  will  demand  the  exercise 
of  the  soundest  judgment  and  the  highest  regard  for  the 
interests  of  all  the  people;  and  there  is  undoubtedly  much 
apprehension  as  to  the  rapid  growth  of  capital  and  the  accu- 
mulation of  great  fortunes,  yet  there  never  was  a  greater 
fallacy  uttered,  nor  a  more  deliberate  untruth  told,  than 
that  in  this  land  of  ours  "the  rich  are  growing  richer  and  the 
poor  are  growing  poorer."  Deep  down  in  his  heart  the 
agitator  who  would  arouse  the  lower  passions  of  the  people 
knows  that  what  he  thus  proclaims  as  a  fact,  or  as  a  new 
discovery,  is  untrue.  Full  well  he  knows,  or  could  know 
if  he  would  and  were  fair  in  mind  and  sound  in  judgment, 
that  not  since  the  dawn  of  history  has  a  people  been  so  free 
in  every  sense,  political,  social  and  economic,  as  are  the  peo- 
ple of  this  nation  at  the  present  time.  Never  in  history  has 
a  people  been  so  well  housed,  so  well  provided  with  good 
food  and  clothing,  so  easily  able  to  educate  their  children 
and  to  provide  for  the  future  of  both  themselves  and  their  chil- 
dren. Not  in  all  the  records  of  human  experience  has  a  race 
or  people  been  so  intelligent,  so  industrious,  so  healthy,  and 

280 


Abraham  Lincoln  and  Alexander  Hamilton 

so  well-to-do  in  material  things  as  these  people  of  the  United 
States  one  hundred  and  fifteen  years  after  the  adoption  of  the 
constitution.  Political  pessimists  seek  industriously  for  occa- 
sional instances  of  abuse  in  power,  or  corruption  in  office,  or 
the  betrayal  of  some  sacred  private  trust;  but  the  man  with 
his  eyes  open  and  his  mind  free  from  the  taint  of  unfair  po- 
litical bias,  can  see,  can  hear,  can  realize,  that  our  people,  our 
masses,  our  wage-earners,  in  a  large  and  all-predominating 
majority,  are  making  progress  and  are  advancing  more 
rapidly  toward  a  higher  standard  of  life  than  has  ever  before 
been  possible  among  the  people  of  any  nation  or  of  any  age. 
Millions  come  to  us  from  other  lands,  not  only  because  of 
higher  wages  or  more  ready  opportunity  for  labor,  but  also, 
and  perhaps  largely,  because  of  our  political  institutions, 
our  beautiful  country,  our  highly  developed  industries,  our 
growth  at  home  and  abroad,  and  our  fiscal  policy  of  pro- 
tection to  American  labor  and  American  genius. 

Our  government  rests  upon  a  constitution  which  was 
framed  after  the  most  intelligent  and  deliberate  considera- 
tion ever  given  to  the  fundamental  law  of  any  land.  There 
can  be  no  narrow  construction  put  upon  that  great  instru- 
ment, which  forms  the  foundation-stone  of  this  republic, 
for  in  the  course  of  human  events  it  is  impossible  to  foresee 
or  anticipate  all  that  may  develop  anew  or  result  from 
changes  in  what  is  old.  Little  can  we  anticipate  questions 
and  problems  arising  from  the  combination  of  events  entirely 
outside  of  the  domain  of  human  prophecy.  Many  of  our 
social  institutions  and  most  of  the  inventions  of  modern 
times,  such  as  the  railway,  the  telegraph,  the  telephone, 
the  practical  uses  of  electricity,  and  the  thousand  and  one 
other  results  of  human  ingenuity  and  specialization,  were 
far  beyond  the  scope  of  the  mind  confronted  with  the 
different  conditions  affecting  the  welfare  and  future  of 
the  nation  one  hundred  and  fifteen  years  ago.  But  the  all- 
predominant  genius  which  framed  that  immortal  instrument 

281 


Life  Insurance  and  Other  Subjects 

— which  we  trust  will  endure  the  ravages  of  time  as  the  best 
form  of  government  yet  devised  for  the  benefit  of  man — left 
to  be  employed  when  needed  wisely  implied  powers  with 
which  the  representatives  of  the  people  could  be  trusted,  and 
which  in  not  a  single  instance  have  been  seriously  abused. 
It  is  not  the  problem  of  war  and  its  stress  and  strife,  but 
the  successful  solution  of  great  social  and  economic  ques- 
tions which  confront  us  at  the  present  time.  Predominant 
in  the  mind  of  many  most  seriously  concerned  with  the  trend 
of  our  national  affairs  is  the  thought,  and  perhaps  the  con- 
viction, that  so-called  trusts  or  combinations  of  capital  and 
large  business  corporations  generally  should  be  brought 
under  the  direct  control  of  the  people  by  an  act  of  Congress. 
Opinions  differ  not  so  much  as  to  the  necessity  and  advan- 
tage of  such  control,  as  upon  the  question  whether  this 
should  be  brought  about  by  an  act  of  Congress  or,  if  neces- 
sary, by  an  amendment  to  the  constitution.  Generally  the 
first  thought  in  the  mind  of  the  political  reformer,  such 
amendments  are  usually  found  to  be  needless  after  more 
mature  consideration.  During  the  first  hundred  years  of  our 
constitutional  history  not  less  than  one  thousand  propo- 
sitions were  made  at  different  times  to  amend  that  instrument, 
but  of  these  only  fifteen  have  been  adopted  and  found  actually 
necessary  to  meet  the  permanent  needs  of  the  nation.  The 
tendency  in  our  national  legislature  from  the  very  outset 
has  been  in  the  direction  of  more  and  more  reliance  upon 
the  doctrine  of  the  implied  powers  in  the  constitution.  While 
there  is,  undoubtedly,  danger  in  a  too  liberal  interpretation 
of  the  constitution,  experience,  including  the  tremendous 
struggle  and  perplexing  problems  of  the  great  Civil  War, 
has  shown  that  as  a  general  rule  the  constitutional  provisions 
covering  the  powers  of  the  executive,  legislative  and  judi- 
cial departments  are  fully  adequate  and  sufficiently  elastic 
to  adapt  themselves  to  changing  conditions  and  the  progress 
of  the  times.     There  has  often  been  a  disposition  to  make 

282 


Abraham  Lincoln  and  Alexander  Hamilton 

the  constitution  a  code  of  laws,  but,  fortunately,  the  safe- 
guards thrown  about  the  instrument  and  the  difficulties  in 
the  way  of  making  amendments  by  the  method  provided 
for  in  the  constitution  itself  are  such  that  only  fundamental 
changes,  having  their  origin  in  inherent  necessities  of  new 
situations  and  resulting  from  new  conditions,  are  ever  likely 
to  become  incorporated  into  the  original  and  enduring  law 
of  this  land.  Attempts  to  amend  the  constitution  show  to  a 
large  degree  the  waves  of  popular  feeling  and  reflect  the 
political  theories  of  the  time. 

In  no  direction,  perhaps,  is  the  constitution  more  ex- 
plicit than  in  the  provisions  for  the  control  by  Congress  of 
interstate  commerce  and  the  implied  power  to  create  and 
control  corporations  engaged  in  such  commerce.  Many  ef- 
forts have  been  made  to  limit  or  define  the  implied  powers 
in  this  direction,  and  not  a  few  to  increase  the  expressed 
powers;  but  while  amendments  have  been  suggested  it  has 
not  been  found  necessary  to  modify  the  constitution  in  this 
respect.  Out  of  this  question  grew  the  great  controversy  over 
the  power  of  Congress  to  charter  corporations,  so  ably  ex- 
pounded in  the  opinions  of  Alexander  Hamilton.  Hamilton, 
with  rare  insight,  controverted  the  contentions  of  Jefferson 
and  Randolph,  and  even  of  Madison,  by  far  the  best  trained 
of  his  antagonists  in  constitutional  debates.  His  opinion 
on  the  constitutionality  of  the  United  States  bank  must  always 
rank  as  one  of  the  most  brilliant  elucidations  of  the  constitu- 
tion and  its  implied  powers.  Marshall,  in  the  later  case  of 
the  United  States  vs.  Maryland,  adopted  much  of  Hamilton's 
reasoning,  and,  in  an  opinion  of  enduring  fame,  declared  that 
"the  act  incorporating  the  bank  of  the  United  States  is  a  law 
made  in  pursuance  with  the  constitution."  The  main  conten- 
tion of  Hamilton  was  "that  all  government  is  a  delegation  of 
power.  But  how  much  is  delegated  in  each  case  is  a  question 
of  fact,  to  be  made  out  by  fair  reasoning  and  construction, 
upon  the  particular  provisions  of  the  constitution,  taking  as 

283 


Life  Insurance  and  Other  Subjects 

guides  the  general  principles  and  general  ends  of  govern- 
ments," and  he  concludes  that  "it  is  not  denied  that  there 
are  implied  as  well  as  express  powers  and  that  the  former 
are  as  effectually  delegated  as  the  latter." 

He  also  brought  out  a  most  important  point,  which  seems 
to  have  escaped  the  attention  of  many  of  those  who  have 
since  written  on  the  constitution,  its  growth,  history,  and  in- 
terpretation, namely,  that  "there  is  another  class  of  powers 
which  may  be  properly  denominated  'resulting  powers.'  " 
With  almost  prophetic  foresight  he  reasons  "it  will  not  be 
doubted  that  if  the  United  States  should  make  a  conquest  of 
any  of  the  territories  of  its  neighbors  they  would  possess 
sovereign  jurisdiction  over  the  conquered  territory,"  but  this, 
he  argues,  "would  be  rather  a  result  from  the  whole  mass  of 
the  powers  of  the  government,  and  from  the  nature  of  politi- 
cal society,  than  a  consequence  of  either  of  the  powers  specif- 
ically enumerated."  Hamilton  realized  the  impossibility  of 
framing  express  constitutional  provisions  for  all  the  varieties 
of  governmental  functions,  exigencies,  and  problems  likely 
to  arise  in  the  course  of  time,  and  he  therefore  relied  upon 
a  conscientious  interpretation  of  the  doctrine  of  implied 
powers.  "The  means  by  which  national  exigencies  are  to  be 
provided  for,  national  inconveniences  obviated,  national 
prosperity  promoted,  are  of  such  infinite  variety,  extent  and 
complexity  that  there  must  of  necessity  be  great  latitude  of 
discretion  in  the  selection  and  application  of  those  means. 
Hence,  consequently,  the  necessity  and  propriety  of  exercising 
the  authorities  entrusted  to  a  government  on  principles  of 
liberal  construction."  And,  finally,  he  concluded  that  "in 
all  questions  of  this  nature,  the  practice  of  mankind  ought 
to  have  great  weight  against  the  theories  of  individuals." 
And  looking  over  the  history  of  our  government  from  that 
time  to  this,  we  should  indeed  have  great  difficulty  in 
finding  exceptions  to  the  general  rule  that  it  has  been  well 
administered  and  primarily  for  the  benefit  of  all  the  people, 

284. 


Abraham  Lincoln  and  Alexander  Hamilton 

with  wisdom,  with  courage,  and  with  honesty,  and  an  earnest 
endeavor  to  conscientiously  live  up  to  the  oath  of  office  im- 
posed upon  the  servants  of  the  people  to  obey  the  constitu- 
tion as  the  fundamental  law  of  the  land. 


2*5 


APPENDIX 


APPENDIX    A 

Under  date  of  September  n,  1905,  I  addressed  the  fol- 
lowing letter  of  inquiry  to  some  eight  thousand  associations 
and  individuals  throughout  the  United  States: 

My  dear  Sir: 

In  his  last  annual  message*  President  Roosevelt  called  the  atten- 
tion of  Congress  to  the  necessity  for  Federal  legislation  providing  for 
the  regulation  and  control  of  insurance  companies  transacting  inter- 
state and  international  business.  In  compliance  with  an  increasing 
demand  from  insurance  policyholders  and  others  interested  in  the 
public  welfare,  I  introduced  into  the  last  Congress  a  bill  to  this  effect, 
providing  that  there  should  be  established  within  the  Bureau  of  Cor- 
porations a  Division  of  Insurance,  and  that  policies  of  insurance  were 
deemed  to  be  articles  of  commerce  and  instrumentalities  thereof. 
The  bill  was  introduced  too  late  to  secure  final  consideration,  but 
the  demand  for  such  a  measure  has  become  even  more  apparent  in 
the  meantime,  and  I  expect  to  reintroduce  the  same,  possibly  with 
slight  modifications,  into  the  Congress  which  is  to  meet  m  December. 

The  bill  will  be  introduced  on  behalf  of  the  policyholders  of  all 
American  insurance  companies,  in  the  firm  belief  that  their  present 
and  future  interests  demand  the  protection  of  a  Federal  statute 
regulating  insurance  transactions  between  the  States,  in  addition, 
of  course,  to  such  supervision  and  regulation  as  constitutionally 
belong  to  the  States  from  which  the  companies  derive  their  charters; 
furthermore,  that  by  eliminating  a  considerable  amount  of  need- 
less State  supervision  the  following  important  benefits  are  expected 
to  result: 

1.  An  increase  in  the  security  of  the  policyholders. 

2.  A  decrease  in  the  expense  rate  and  the  cost  of  insurance. 

3.  A  decrease  in  the  burden  of  needless  taxation. 

4.  A  decrease  in  the  amount  of  clerical  labor  now  indispensable  to  meet 
the  requirements  of  some  fifty  States  and  Territories. 

5.  The  stamping  out  of  fraudulent  insurance  enterprises. 

6.  Adequate  national  protection    for    American    companies   transacting 
business  in  foreign  countries. 

*  "The  business  of  insurance  vitally  affects  the  great  mass  of  the  people  of  the  United  States  and  is 
national  and  not  local  in  its  application.  It  involves  a  multitude  of  transactions  among  the  people  of  the 
different  States  and  between  American  companies  and  foreign  governments.  I  urge  that  the  Congress  care- 
fully consider  whether  the  power  of  the  Bureau  of  Corporations  cannot  constitutionally  be  extended  to 
cover  interstate  transactions  in  insurance."     [December  6,  1904.] 


Life  Insurance  and  Other  Subjects 

Since  thus  far  interstate  insurance  transactions  have  not  been 
brought  within  the  scope  of  Congressional  action,  I  desire  to  secure 
an  expression  of  views  from  the  interests  affected  by  such  a  measure, 
and,  therefore,  take  the  liberty  of  troubling  you  with  a  few  ques- 
tions to  which  I  would  like  to  have  you  reply  either  YES  or  NO,  as 
the  case  may  be,  together  with  any  additional  comments  of  your  own 
which  you  may  wish  to  make  upon  the  matter. 

If  entirely  convenient,  kindly  fill  in  and  return  to  me  the  attached 
blank  in  the  enclosed  stamped  envelope  and  accept  in  advance  my 
sincere  thanks  for  your  courtesy  and  co-operation  in  my  effort  to 
secure  a  comprehensive  expression  of  qualified  public  opinion  upon 
a  matter  vitally  affecting  the  welfare  of  the  American  people. 
I  am,  very  truly  yours, 

John  F.  Dryden. 

Federal  Regulation  of  Insurance  Companies 

Question  I.  Do  you  endorse  the  suggestion  of  President  Roose- 
velt, that  insurance  companies  engaged  in  interstate  insurance  busi- 
ness should  be  regulated  by  and  brought  under  the  control  of  the 
Federal  government  ? 

Question  2.  Do  you  hold  the  insurance  business  to  be  a  national 
rather  than  a  local  interest,  and  properly  entitled  to  the  solicitude 
and  care  of  the  national  government  ? 

Question  3.  As  a  matter  of  personal  opinion,  do  you  hold  the 
business  of  insurance  to  be  commerce,  or  an  integral  and  indispensa- 
ble element  of  commerce,  in  the  sense  in  which  this  term  is  used  in 
everyday  language  ? 

Question  4.  Are  you  in  any  way  apprehensive  that  it  would  be 
inexpedient  or  inadvisable  to  increase  the  power  of  the  Federal 
government  to  the  extent  implied  in  the  regulation  of  insurance  by 
Congress  ? 

In  reply  to  Question  1 — "Do  you  endorse  the  sugges- 
tion of  President  Roosevelt,  that  insurance  companies  en- 
gaged in  interstate  insurance  business  should  be  regulated 
by  and  brought  under  the  control  of  the  Federal  govern- 
ment ?" — out  of  7,454  answers,  6,581  were  favorable,  or  88.3 

2Q0 


Appendix  A 


per  cent,  of  all  the  letters  received.  By  principal  States  or 
geographical  divisions,  the  results  were  as  follows: 

Summary  of  Replies  to  Question  i 

Total  Answers  Not         Pet  Cent. 

Replies  Yes  No         Specified        Yes 

New  England  States 741  575  163  3        77.6 

New  York,  New  Jersey,  and  Pennsylvania   2,491  2,213  266  12        88.8 

Southern  States 1,108  928  172  8        83.8 

North  Central  States 2,624  2,402  206  16        91.5 

Rocky  Mountain  and  Pacific  Coast  States      490  463  26  1         94.5 

Totals 7,454  6,581  833  40        88.3 

The  returns  by  individual  States  and  Territories  were 
as  follows: 

Replies  to  Question  i  by  States  and  Territories 

Total  Answers  Not      Per  Cent. 

Replies  Yes  No  Specified      Yes 

Alabama      65  61  4  93.8 

Arizona 8  7  1  87.5 

Arkansas      27  24  3  88.9 

California 193  189  4  97.9 

Colorado 113  106  7  93.8 

Connecticut 122  90  31  1       73.8 

Delaware 23  17  6  73.9 

District  of  Columbia 133  118  15  88.7 

Florida 31  27  4  87.1 

Georgir. 116  102  14  87.9 

Hawaii 2  1  ..  1        50.0 

Idaho 12  12  .    .  100.0 

Illinois      429  392  37  91.4 

Indiana 177  156  21  88.1 

Indian  Territory 6  6  .    .  100.0 

Iowa 287  269  17  1       93.7 

Kansas 180  170  9  I       94.5 

Kentucky 82  61  20  1       74.4 

Louisiana 63  51  11  1       81.0 

Maine 53  45  8  84.9 

Maryland 113  95  17  1       84.1 

Massachusetts 460  352  106  2       76.5 

Michigan 249  232  15  2       93.2 

Minnesota 146  135  9  2       92.5 

Mississippi 35  31  4  88.6 

Missouri 220  192  26  2       87.3 

Montana iS  16  2  88.9 

Nebraska      195  180  14  1       92.3 


29I 


Life  Insurance  and  Other  Subjects 
Replies  to  Question  i  by  States  and  Territories 

(Continued) 

Total  Answers  Not      Per  Cent. 

Replies  Yes  No   Specified      Yes 

Nevada I  i  .    .  ioo.o 

New  Hampshire 33  26  7  78.8 

New  Jersey 203  182  20  1       89.7 

New  Mexico 8  6  2  75.0 

New  York 1,321  1,156  161  4      87.5 

North  Carolina 52  43  8  1       82.7 

North  Dakota 21  18  3  85.7 

Ohio 488  446  38  4      91.4 

Oklahoma 10  9  1  90.0 

Oregon      52  49  3  94-2 

Pennsylvania 967  875  85  7       90.5 

Rhode  Island 38  34  4  89.5 

South  Carolina 35  23  12  65.7 

South  Dakota      24  20  3  1       83.3 

Tennessee 76  66  8  2       86.8 

Texas no  93  16  1       84.5 

Utah      13  10  3  76.9 

Vermont 35  28  7  80.0 

Virginia 93  65  27  1       69.9 

Washington 53  51  2  96.2 

West  Virginia 38  36  2  94.7 

Wisconsin 208  192  14  2       92.3 

Wyoming 17         15  2  88.2 

Totals 7,454        6,581       833        40      88.3 

In  reply  to  Question  2 — "Do  you  hold  the  insurance 
business  to  be  a  national  rather  than  a  local  interest,  and 
properly  entitled  to  the  solicitude  and  care  of  the  national 
government  ?" — out  of  7,454  answers,  6,543  were  favorable, 
or  87.8  per  cent,  of  all  the  letters  received.  By  principal 
States  or  geographical  divisions,  the  results  were  as  follows : 

Summary  of  Replies  to  Question  2 

Total  Answers  Not         Per  Cent. 

Replies  Yes        No        Specified        Yes 

New  England  States 741  570  139  32  75.7 

New  York,  New  Jersey,  and  Pennsylvania  2,491  2,197  229  65  88.2 

Southern  States 1,108  922  163  23  83.2 

North  Central  States 2,624  2,394  189  41  91.2 

Rocky  Mountain  and  Pacific  Coast  States  490  460  24  6  93.9 

Totals 7,454     6,543      744      167        87.8 


292 


Appendix  A 

In  reply  to  Question  3 — "As  a  matter  of  personal  opin- 
ion, do  you  hold  the  business  of  insurance  to  be  commerce, 
or  an  integral  and  indispensable  element  of  commerce,  in 
the  sense  in  which  this  term  is  used  in  everyday  language  ?" 
— out  of  7,454  answers,  5,300  were  favorable,  or  71.1  per 
cent,  of  all  the  letters  received.  By  principal  States  or  geo- 
graphical divisions,  the  results  were  as  follows: 

Summary  of  Replies  to  Question  3 

Total  Answers  Not        Per  Cent. 

Replies  Yes        No        Specified       Yes 

New  England  States 741  425  213  103  57.4 

New  York,  New  Jersey,  and  Pennsylvania  2,491  1,795  437  259  72.0 

Southern  States 1,108  788  231  89  66.7 

North  Central  States 2,624  ^955  429  240  74.5 

Rocky  Mountain  and  Pacific  Coast  States  490  337  93  60  68.8 

Totals 7,454     5»3°°   lAo$      75*        71-1 

In  reply  to  Question  4 — "Are  you  in  any  way  appre- 
hensive that  it  would  be  inexpedient  or  inadvisable  to  in- 
crease the  power  of  the  Federal  government  to  the  extent 
implied  in  the  regulation  of  insurance  by  Congress  ?" — out 
of  7,454  answers,  6,047,  or  81.1  per  cent.,  were  in  the  nega- 
tive, or,  in  other  words,  favorable  to  the  theory  of  Federal 
supervision  of  insurance.  This  question  was  apparently 
misunderstood  in  quite  a  number  of  cases,  and  the  reply  made 
in  the  affirmative  where  the  negative  was  intended.  I, 
however,  leave  the  results  as  they  were  received,  without 
correction : 

Summary  of  Replies  to  Question  4 

Total  Answers  Not        Per  Cent. 

Replies  Yes         No        Specified         No 

New  England  States 741  179  528  34  71.3 

New  York,  New  Jersey,  and  Pennsylvania  2,491  400  2,007  84  S0.6 

Southern  States 1,108  222  846  40  76.4 

North  Central  States 2,624  344  2,232  48  85.1 

Rocky  Mountain  and  Pacific  Coast  States  490  49  434  7  88.6 

Totals     7,454     1,194  6,047      213        81. 1 

293 


APPENDIX  B 
Synopsis  of  Senate  Bill  3026 

Organization   of  Bureau  of  Insurance 
Sec.  14 — Article  of  Enactment. 

Bureau  of  Insurance    Established  in  Department 

of  Commerce  and  Labor. 
Comptroller  of  Insurance  in  Charge. 
Oath  of  Office  and  Bond. 
Deputy  Comptroller. 
Actuary. 

Clerks  and  Employees. 

Appointments  by  Secretary  of  Commerce  and  Labor. 
Supervision  by  Secretary  of  Commerce  and  Labor. 
Interest  in  Insurance  Companies  Prohibited. 

Sec.  15 — Offices,  etc. 
Seal. 
Fees  to  go  to  Treasury.     Expenses  to  be  paid  from 

Appropriation  for  Department  of  Commerce 

and  Labor. 
Reports  to  be  made  to  Congress. 

Scope  of  Act  and  Definition  of  Terms 

Sec.  16 — Scope  of  Act. 

Corporations  Defined. 

Interstate  Insurance  Declared  to  be  Interstate  Com- 
merce. 

Single  State  Companies  Excepted. 
Sec.  17 — Fraternal  Organizations  Excepted. 

Interinsurance  Exchange  Excepted. 

Administration  and  Regulation 

Sec.  18 — Rules,  Regulations,  and  Fees. 

Reports  Required  from  Insurance  Corporations. 

294 


Appendix  B 

Penalty  for  Failure  to  Make  Reports. 
Valuation  and  Reinsurance  Reserve. 
Sec.  19 — Authority  and  Power  to  Make  Examinations. 
Authority  to  Employ  Special  Examiners. 
Aid  of  United  States  Courts. 
Examinations    upon   Request  of  State    Insurance 

Officials. 
Companies  to  Pay  Expenses  of  Examinations. 
Fees  and  Charges  to  be  Paid  into  the  Treasury. 
Limitation  of  Visitorial  Powers. 

Requirements  of  Corporations  Transacting  Interstate 
Insurance 

Sec.  20 — Filing  of  Charter  and  other  Documents. 

List  of  Stockholders  or  Trustees  Required. 

Deposit  Required  to  be  Made. 

Certificate  of  Authority  to  Transact  Interstate 

Insurance. 
Local  Attorneys  to  be  Appointed. 

Sec.  21 — When  Certificates  of  Authority  shall  be  Revoked. 
Proceedings  in  case  of  Receiverships. 
Hearing  to  be  Granted. 
American  Insurance  Companies  in  Foreign 
Countries. 

Crimes,  Penalties,  Etc. 

Sec.  22 — Assistance  of  Attorney-General. 

Proceedings  by  Attorney-General. 

Penalty  for  Perjury. 

Penalty  for  Accepting  Bribes,  etc. 

Unauthorized  Insurance. 

Repeal  of  Inconsistent  Laws. 

Transfer  of  Records. 

When  Act  Goes  into  Effect. 


295 


APPENDIX  C 

Analysis  of  Senate  Bill  3026,  Fifty-ninth  Congress, 

First  Session 

The  bill  contains  some  fifty  separate  provisions,  of  which 
the  first  thirteen  relate  to  the  organization  of  the  proposed 
bureau  of  insurance  in  the  Department  of  Commerce  and 
Labor.  The  bureau  is  to  be  in  charge  of  a  Comptroller  of 
Insurance,  who  is  required  to  furnish  a  bond  of  $100,000. 

In  nearly  all  essentials,  the  bill,  as  far  as  possible,  con- 
forms to  the  organic  acts  establishing  other  departments  of 
the  Federal  government,  but  in  particular  to  the  national 
bank  act.  There  is  to  be  a  Deputy  Comptroller,  who  is  also 
to  be  a  bonded  officer,  and  an  actuary,  who  is  required  to 
be  a  person  of  recognized  professional  ability  and  experience. 
The  general  supervision  and  control  of  the  bureau  is  under 
the  direction  of  the  Secretary  of  Commerce  and  Labor,  and 
all  fees  or  other  moneys  collected  are  required  to  be  paid  into 
the  Treasury. 

The  Comptroller  must  make  an  annual  report  to  Con- 
gress, including  the  details  of  all  examinations  made  of  com- 
panies during  the  year,  together  with  a  complete  statement 
of  the  receipts  and  disbursements  of  the  bureau. 

The  provisions  of  the  act  apply  to  all  corporations,  asso- 
ciations, or  partnerships  engaged  in  interstate  insurance 
business  who  make  and  deliver  insurance  contracts  outside 
the  State  of  incorporation  or  origin  or  authority,  but  have  no 
application  to  fraternal  insurance  societies,  or  organizations 
having  a  lodge  system  and  carried  on  for  the  sole  benefit  of 
members  and  not  for  profit.  Such  associations  or  societies, 
however,  may  voluntarily  take  advantage  of  the  act,  and, 
after  complying  with  all  its  provisions,  become  duly  author- 
ized by  the  Comptroller  to  transact  interstate  insurance. 

The  Comptroller  is  required  to  establish  rules  and  regu- 
lations and  reasonable  fees  for  conducting  the  business  of 

2Q6 


Appendix  C 

insurance,  including  annual  and  other  reports  to  be  made 
by  companies.  The  penalty  for  failure  to  make  or  transmit 
any  report  or  statement  of  fact  required  is  $100  for  each  day 
of  delay. 

The  Comptroller  is  also  required  to  have  a  conservative 
valuation  made  of  the  business  of  life  companies,  or  deter- 
mine the  reinsurance  reserve  of  other  companies,  upon 
approved  methods  and  tables  and  by  such  a  standard  of 
interest  as  may,  in  his  judgment  and  discretion,  best  serve 
the  purpose  to  determine  and  establish  the  true  financial 
condition  of  companies. 

Authority  and  power  to  inquire  into  the  details  and  facts 
of  the  management  of  all  corporations  engaged  in  interstate 
insurance  is  given  to  the  Comptroller,  and  he  may  have  the 
companies  examined  by  special  examiners  whenever  neces- 
sary or  expedient.  To  this  end  he  may  invoke  the  aid  of 
any  court  of  the  United  States  to  require  the  attendance 
and  testimony  of  witnesses,  and  the  production  of  books, 
papers  and  documents. 

Failure  to  obey  such  order  of  the  court  may  be  punished 
as  a  contempt  thereof.  It  is  also  provided  that  companies 
may  be  investigated  by  the  Comptroller  upon  the  complaint 
of  any  State  Commissioner  of  Insurance. 

The  actual  and  reasonable  expense  of  every  examination 
or  special  investigation  of  the  affairs  of  an  insurance  corpora- 
tion engaged  in  interstate  insurance  must  be  paid  by  the 
corporation  so  examined.  All  charges  and  fees  for  making 
such  examinations,  however,  must  be  presented  in  the  form 
of  an  itemized  bill,  approved  by  the  Comptroller  of  Insur- 
ance, and  the  amount  thereof  must  be  paid  into  the  Treasury 
of  the  United  States. 

Corporations  transacting  interstate  or  foreign  insurance 
are  specifically  exempted  from  making  any  other  or  separate 
statements  or  reports,  and  are  not  to  be  subject  to  any  visi- 
torial  powers  or  examinations  of  their  business  and  accounts 

297 


Life  Insurance  and  Other  Subjects 

other  than  by  the  Comptroller  of  Insurance,  or  by  the  proper 
authorities  of  the  State  of  incorporation  or  origin. 

Corporations  engaged  in  the  business  of  insurance  in  more 
than  one  State  must  file  a  copy  of  their  charter  or  other  docu- 
ments of  local  authority,  and  annually  publish  a  list  of  their 
stockholders  or  trustees.  They  are  required  to  make  a  de- 
posit of  $100,000,  either  with  the  Commissioner  of  Insur- 
ance or  with  the  proper  official  of  the  State  of  incorporation 
or  origin. 

After  these  requirements  have  been  met  to  the  satisfac- 
tion of  the  Comptroller,  a  certificate  of  authority  and  power 
to  transact  interstate  insurance  shall  be  issued,  whereby  such 
corporations  are  authorized  to  transact  business  in  any  State, 
Territory,  or  district  of  the  United"  States,  without  further 
supervision  or  regulation  than  by  the  Comptroller  of  Insur- 
ance or  the  duly  authorized  official  of  the  State  of  incorpora- 
tion or  origin.  Provision  is  made  for  conditions  under 
which  the  certificates  of  authority  shall  be  revoked  and  for 
proceedings  in  case  of  receivership. 


zg8 


APPENDIX   D 

s.  3026 

59th  Congress,  1st  Session 


In  the  Senate  of  the  United  States 

January  15,  1906 

Mr.  Dryden  introduced  the  following  bill,  which  was  read  twice  and  referred  to 
the  Committee  on  the  Judiciary 


A  BILL 

To  amend  an  Act  entitled  "An  Act  to  establish  the  Depart- 
ment of  Commerce  and  Labor,"  approved  February 
fourteenth,  nineteen  hundred  and  three,  being  chap- 
ter five  hundred  and  fifty-two  of  the  United  States 
Statutes,  enacted  by  the  Fifty-seventh  Congress. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives 
of  the  United  States  of  America  in  Congress  assembled, 
That  the  Act  entitled  "An  Act  to  establish  the  Department 
of  Commerce  and  Labor,"  approved  February  fourteenth, 
nineteen  hundred  and  three,  be  amended  by  adding  thereto 
the  following: 

"Sec.  14.  That  there  shall  be  in  the  Department  of  Commerce 
and  Labor  a  division  to  be  called  the  Bureau  of  Insurance,  which 
shall  be  charged  with  the  execution  of  this  and  all  other  laws  that 
may  be  passed  by  Congress  for  the  supervision  and  regulation  of  the 
business  of  insurance  among  the  several  States.  The  Bureau  of 
Insurance  shall  be  in  charge  of  an  officer  to  be  called  the  Comptroller 
of  Insurance,  who  shall  be  appointed  by  the  President,  by  and  with 
the  advice  and  consent  of  the  Senate.  He  shall  hold  his  office  for 
the  term  of  four  years,  unless  sooner  removed  by  the  President.  He 
shall  receive  an  annual  salary  of  dollars,  to  be  paid  in  monthly 

instalments.  The  Comptroller  of  Insurance  shall,  within  fifteen 
days  from  the  time  of  notice  of  his  appointment,  take  and  subscribe 
the  oath  of  office;  and  he  shall  give  to  the  United  States  a  bond  in 
the  penalty  of  one  hundred  thousand  dollars,  to  be  approved  by  the 
Secretary  of  Commerce  and  Labor,   conditioned   for  the   faithful 

299 


Life  Insurance  and  Other  Subjects 

discharge  of  the  duties  of  his  office.  There  shall  also  be  in  the 
Bureau  of  Insurance  a  Deputy  Comptroller  of  Insurance,  who  shall 
be  entitled  to  an  annual  salary  of  dollars,  to  be  paid  in  monthly 

instalments,  and  he  shall  possess  the  power  and  perform  the  duties 
attached  by  law  to  the  office  of  the  Comptroller  during  a  vacancy 
in  the  office  or  during  the  absence  or  inability  of  the  Comptroller. 
The  Deputy  Comptroller  shall  also  take  the  oath  of  office  prescribed 
by  the  Constitution  and  laws  of  the  United  States,  and  shall  give  a 
like  bond  in  the  penalty  of  fifty  thousand  dollars.  There  shall  also 
be  in  said  Bureau  of  Insurance  an  actuary,  who  shall  be  selected 
for  his  knowledge,  skill,  and  practical  experience  in  actuarial  duties, 
and  who  shall  be  a  person  of  established  reputation  and  qualifica- 
tion, and  who  shall  aid  and  assist  the  Comptroller  of  Insurance,  in 
the  capacity  of  an  actuary,  and  perform  the  usual  duties  appertain- 
ing to  his  office.  There  shall  also  be  a  chief  clerk  to  the  Comptroller 
of  Insurance,  and  such  special  agents,  examiners,  clerks,  and  other 
employees  as  may  be  authorized  by  law  and  may  be  necessary  for 
the  work  of  said  Bureau.  All  officers  and  employees  of  the  Bureau 
of  Insurance  other  than  the  Comptroller  shall  be  appointed  by  the 
Secretary  of  Commerce  and  Labor.  The  work  of  the  Comptroller 
of  Insurance  and  his  subordinates  shall,  in  all  respects,  be  subject 
to  the  supervision  of  the  Secretary  of  Commerce  and  Labor,  and  it 
shall  not  be  lawful  for  the  Comptroller  of  Insurance  or  the  Deputy 
Comptroller,  or  any  official  or  employee  of  the  Bureau  of  Insurance, 
either  directly  or  indirectly,  except  as  a  policyholder,  to  be  interested 
in  any  insurance  corporation,  association,  or  partnership. 

"Sec.  15.  That  there  shall  be  assigned  to  the  Comptroller 
of  Insurance,  by  the  Secretary  of  Commerce  and  Labor,  suitable 
office  rooms,  and  he  shall  supply  said  Bureau  with  the  necessary 
furniture,  stationery,  fuel,  light,  and  other  proper  conveniences  for 
the  transaction  of  the  business  of  said  Bureau.  The  Comptroller 
of  Insurance,  with  the  approval  of  the  Secretary  of  Commerce  and 
Labor,  shall  devise  a  seal  with  suitable  inscription,  a  description  of 
which,  with  the  certificate  of  approval  of  the  Secretary  of  Commerce 
and  Labor,  shall  be  filed  in  the  office  of  the  Secretary  of  State,  with 
the  impression  thereof,  which  shall  thereupon  become  the  seal 
of  the  office  of  said  Comptroller  of  Insurance.  Every  certificate 
and  all  other  papers  issued  by  him  in  pursuance  of  any  authority 

300 


Appendix  D 

conferred  on  him  by  law,  and  sealed  with  his  seal  of  office,  shall  be 
received  in  evidence  in  all  courts  of  law  and  equity  and  other  places. 
All  fees  or  other  moneys  collected  or  recovered  under  the  rules  and 
regulations  of  the  Comptroller  of  Insurance,  as  approved  by  the 
Secretary  of  Commerce  and  Labor,  shall  be  paid  monthly  into  the 
Treasury  of  the  United  States,  and  all  the  salaries  and  expenses  of 
administering  this  law  shall  be  paid  by  the  Treasurer  of  the  United 
States  from  the  appropriation  for  the  Department  of  Commerce 
and  Labor.  The  Comptroller  of  Insurance  shall  annually  prepare 
for  the  Secretary  of  Commerce  and  Labor,  to  be  transmitted  by  him 
to  Congress,  a  report  containing,  in  reasonable  detail,  an  abstract 
of  the  statistical  and  other  reports  made  to  him  by  corporations, 
associations,  and  partnerships,  subject  to  the  provisions  of  this  Act, 
together  with  a  summary  statement  of  the  insurance  business  in  the 
United  States,  properly  classified,  and  such  other  statements,  in- 
formation, facts,  or  comments  relating  to  insurance  as  he  may  deem 
to  be  of  public  interest.  The  annual  report  of  the  Comptroller  of 
Insurance  shall  also  include  and  contain  the  rules  and  regulations 
established  by  him,  and  approved  by  the  Secretary  of  Commerce 
and  Labor,  to  carry  out  the  intent  and  purposes  of  this  Act,  and  the 
facts  and  results  of  all  examinations  of  insurance  companies  which 
he  may  have  made  or  may  have  caused  to  be  made  during  the  pre- 
ceding year,  together  with  a  complete  and  detailed  statement  of 
the  receipts  and  expenses  of  the  Bureau  of  Insurance  during  the 
year  from  any  source  whatever. 

"Sec.  16.  That  the  provisions  of  this  Act  shall  apply  to  all  cor- 
porations, associations,  and  partnerships,  including  individual  under- 
writers known  as  Lloyd's,  engaged  in  interstate  insurance  business, 
or  who  make  and  deliver  insurance  contracts  outside  of  the  limits  of 
the  State  of  incorporation  or  organization  or  authority,  and  their 
attorneys  in  fact,  and  all  such  are  hereby  declared  and  held  to  be  en- 
gaged in  interstate  or  foreign  commerce,  as  the  case  may  be.  The 
term  corporation,  wherever  used  in  this  Act,  shall  include  companies, 
associations,  societies,  partnerships,  and  individual  underwriters 
engaged  in  the  business  of  insurance,  or  in  any  of  its  branches,  and 
duly  incorporated  or  authorized  under  the  laws  of  the  United  States, 
or  of  any  State,  Territory,  District,  or  foreign  nation.  Policies  or 
any  other  contracts  of  insurance  are  hereby  deemed  and  declared 

301 


Life  Insurance  and  Other  Subjects 

to  be  articles  of  commerce  and  instrumentalities  thereof.  The  de- 
livery by  said  corporations  of  said  policies  or  contracts  of  insurance 
from  the  State,  Territory,  District,  or  country  of  incorporation  or 
origin  to  corporations  or  persons  resident  of  or  located  in  other  States, 
Territories,  Districts,  or  foreign  nations;  the  transmission  by  the 
insured  from  such  other  States,  Territories,  Districts,  or  foreign  na- 
tions of  the  premiums  or  other  valuable  consideration  for  said  policies 
to  the  home  office  of  the  company  in  another  State,  Territory,  Dis- 
trict, or  foreign  nation,  are  hereby  declared  and  deemed  to  be  trans- 
actions in  interstate  or  foreign  commerce,  as  the  case  may  be;  but 
the  provisions  of  this  Act  shall  not  apply  to  any  corporation  transact- 
ing the  business  of  insurance  exclusively  within  the  State,  Territory, 
or  District  of  its  creation. 

"Sec.  17.  That  this  Act  shall  have  no  application  to  any  cor- 
poration, society,  order,  or  voluntary  association  formed  or  organized 
and  carried  on  for  the  sole  benefit  of  its  members  and  their  benefi- 
ciaries, and  not  for  profit,  having  a  lodge  system  and  representative 
form  of  government,  making  insurance  provision  for  the  payment 
of  benefits  in  case  of  death,  sickness,  disability,  accident,  or  old  age. 
But  the  Comptroller  of  Insurance  shall  be  authorized  and  have  power 
to  determine  upon  the  facts  whether  the  corporation  or  association 
or  organization  is  in  fact  of  a  purely  religious,  charitable,  or  benevo- 
lent character:  Provided,  That  any  such  corporation,  association, 
society,  or  order  transacting  fraternal  or  mutual  benefit  insurance  in 
more  than  one  State  may  voluntarily  take  advantage  of  this  Act,  and 
after  complying  with  all  its  provisions,  and  with  the  rules  and  regu- 
lations of  the  Bureau  of  Insurance,  be  duly  authorized  by  the  Comp- 
troller to  transact  interstate  insurance :  And  provided  further,  That 
the  provisions  of  this  Act  shall  not  apply  to  associations  known  as 
interinsurance  exchanges,  the  members  whereof  indemnify  one 
another  against  loss  by  fire,  organized  for  the  purpose  of  saving  ex- 
penses and  diminishing  losses,  and  not  for  personal  profit  or  gain  or 
as  commercial  undertakings. 

"Sec.  18.  That  the  Comptroller  of  Insurance,  subject  to  the 
approval  of  the  Secretary  of  Commerce  and  Labor,  shall  from  time 
to  time  fix  and  establish  such  rules,  regulations,  and  reasonable  fees 
for  conducting  the  business  of  the  Bureau  and  for  carrying  out 
the  provisions  of  this  Act  as  he  may  deem  necessary  and  proper  for 

302 


Appendix  D 

securing  an  effective,  uniform,  and  economical  administration  of  the 
Bureau.  Said  rules  and  regulations  shall  provide  methods  and  forms 
for  annual  or  other  reports  to  the  Comptroller  of  Insurance  by  cor- 
porations transacting  interstate  or  foreign  insurance,  which  annual 
or  other  reports  shall  be  duly  attested  under  seal  by  such  corpora- 
tions and  sworn  to  by  the  president,  vice  president,  secretary,  or  some 
other  officer  thereof  before  an  official  duly  authorized  to  administer 
oaths  who  is  not  an  officer  or  employee  of  the  corporation  reporting. 
And  the  said  Comptroller  shall  forward,  in  December  of  each  year, 
to  every  corporation  authorized  under  this  Act  to  transact  interstate 
insurance,  or  its  agent  or  attorney,  the  necessary  blank  forms  for  the 
annual  statements  of  such  company,  which  shall  be  returned  to  the 
Comptroller  on  or  before  the  first  day  in  March  of  each  year,  signed 
and  sworn  to  by  the  president,  vice  president,  or  secretary,  or,  if  a 
foreign  company,  by  its  manager  or  proper  representative  within 
the  United  States,  showing  its  true  financial  condition  as  of  the  next 
preceding  thirty-first  day  of  December,  which  shall  include  a  correct 
and  detailed  statement  of  the  assets  and  liabilities  of  that  date,  the 
amount  and  character  of  business  transacted,  losses  sustained,  and 
money  received  and  expended  during  the  year,  and  such  other  in- 
formation as  the  said  Comptroller  may  deem  necessary.  Every  cor- 
poration transacting  interstate  or  foreign  insurance  which  fails  to 
make  and  transmit  any  report  or  information  or  statement  of  fact 
required  by  this  Act  shall  be  subject  to  a  penalty  of  one  hundred 
dollars  for  each  day  after  the  periods  therein  respectively  mentioned 
that  it  delays  to  make  and  transmit  its  report.  And  whenever  any 
corporation  refuses  to  pay  the  penalty  herein  imposed,  after  it  has 
been  assessed  by  the  Comptroller  of  Insurance,  the  Comptroller  shall 
have  authority  to  recover  the  penalties  imposed  by  due  process  of  law, 
but  he  may,  in  his  discretion,  extend  the  time  for  making  such  report 
for  a  period  not  exceeding  thirty  days.  All  sums  of  money  collected 
for  penalties  under  this  section  shall  be  paid  monthly  into  the  Treas- 
ury of  the  United  States.  It  shall  be  the  duty  of  the  Comptroller 
of  Insurance  to  require  of  each  corporation  transacting  interstate 
insurance,  preliminary  to  the  granting  of  a  certificate  of  authority 
to  engage  thereafter  in  such  insurance  among  the  States,  a  true  and 
complete  statement  as  of  the  thirty-first  day  of  December  next  pre- 
ceding of  all  policies  or  other  contracts  of  insurance  in  force,  together 

303 


Life  Insurance  and  Other  Subjects 

with  their  valuation  or  reinsurance  reserve,  made  or  determined 
according  to  the  laws  of  the  State,  Territory,  District,  or  foreign 
nation  of  its  incorporation,  origin,  or  authority,  and  annually  there- 
after the  Comptroller  shall  cause  to  be  made,  by  and  under  the  direc- 
tion of  the  actuary  of  the  Bureau,  a  true  and  complete  valuation  or 
determination  of  the  reinsurance  reserve  of  all  policies  or  contracts 
of  insurance  in  force  with  any  corporation  subject  to  the  provisions 
of  this  Act,  upon  such  approved  tables  and  methods  and  by  such 
a  standard  of  interest  as  may  in  his  judgment  and  discretion  best 
serve  the  purpose  to  determine  and  establish  the  true  financial  condi- 
tion and  outstanding  liabilities  of  the  same. 

"Sec.  19.  That  the  Comptroller  shall  have  authority  and  power 
to  inquire  into  the  details  and  facts  of  the  management  of  all  cor- 
porations subject  to  the  provisions  of  this  Act,  and  he  shall  keep 
himself  informed  as  to  all  business  matters  of  said  corporations, 
and  he  shall  have  authority  and  power  to  obtain  from  them  true 
and  complete  information  and  facts  necessary  to  enable  him  to 
properly  perform  the  duties  and  carry  out  the  objects  for  which  this 
Bureau  of  Insurance  was  established.  And  he  shall  have  authority 
and  power  to  examine,  or  have  examined  by  the  Deputy  Comptroller 
or  any  other  qualified  employee  or  special  examiner  designated  for 
the  purpose,  all  books,  papers,  and  everything  pertaining  to  the 
business  or  management  of  said  corporation  at  any  or  all  times 
when  he  may  deem  this  necessary  or  expedient;  and  he  shall  have 
the  power  to  require  the  attendance  and  testimony  of  witnesses  and 
the  production  of  books,  papers,  and  documents  relating  to  any 
matter  under  investigation.  And  to  that  end  he  may  invoke  the 
aid  of  any  court  of  the  United  States  to  require  the  attendance  and 
testimony  of  witnesses  and  the  production  of  books,  papers,  and 
documents.  And  any  circuit  court  of  the  United  States  within  the 
jurisdiction  of  which  such  inquiry  is  carried  on  may,  in  case  of  con- 
tumacy or  refusal  to  obey  subpoena  issued  to  any  corporation  or 
person  subject  to  the  provisions  of  this  Act,  issue  an  order  requiring 
such  corporation  or  person  to  appear  before  said  Comptroller  and 
produce  books,  papers,  and  documents,  if  so  ordered,  and  give 
evidence  touching  the  matter  of  inquiry;  and  any  failure  to  obey 
such  order  of  the  court  may  be  punished  by  such  court  as  a  contempt 
thereof.     The  Comptroller  of  Insurance  shall  also  investigate  any 

304 


Appendix  D 

complaint,  made  in  his  own  behalf,  or  forwarded  by  the  commis- 
sioner, superintendent,  or  other  official  charged  with  the  execution 
of  the  insurance  laws  of  any  State,  Territory,  or  District,  at  the 
request  of  such  commissioner,  superintendent,  or  other  officials, 
and  may  institute  any  inquiry  on  his  own  motion  in  the  same  manner 
and  to  the  same  effect  as  though  complaint  had  been  made;  and  the 
result  and  findings  of  such  examination  or  investigation,  upon  having 
been  approved  by  the  Secretary  of  Commerce  and  Labor,  shall  be 
communicated  without  undue  delay  to  the  commissioner,  superin- 
tendent, or  other  State  official  making  the  complaint  or  requesting 
the  investigation  to  be  made:  Provided,  That  the  actual  and 
reasonable  expense  of  every  examination  or  special  investigation 
of  the  affairs  of  an  insurance  corporation  authorized  to  transact 
interstate  insurance  under  the  provisions  of  this  Act  shall  be  borne 
and  paid  by  the  corporation  so  examined:  And  provided  further, 
That  no  charge  shall  be  made  for  any  examination  of  an  insurance 
corporation  by  the  Comptroller  or  his  deputy  personally,  or  by  one 
or  more  of  the  regular  clerks  or  employees  of  the  Bureau,  except  for 
necessary  traveling  and  other  expenses.  All  charges  and  fees  for 
making  any  examination,  and  all  charges  and  fees  against  an  in- 
surance corporation  by  an  attorney  or  appraiser  of  the  Bureau  of 
Insurance,  shall  be  presented  in  the  form  of  an  itemized  bill  approved 
by  the  Comptroller  of  Insurance;  and  the  corporation  examined,  on 
receiving  a  certified  copy  of  such  bill,  so  approved  and  properly 
audited,  shall  pay  the  amount  thereof  to  the  Comptroller  of  Insur- 
ance, to  be  paid  by  him  into  the  Treasury  of  the  United  States.  No 
corporation  examined  shall,  either  directly  or  indirectly,  pay,  by 
way  of  gift,  credit,  or  otherwise,  any  other  or  further  sum  to  the 
Comptroller  or  Deputy,  or  any  clerk  or  employee  of  the  Bureau  of 
Insurance,  or  any  examiner,  for  extra  services,  or  for  purposes  of 
legislation,  or  on  any  other  pretense  whatsoever:  Provided,  That 
no  corporation  transacting  interstate  or  foreign  insurance  shall  be 
required  by  any  other  than  the  State,  Territory,  or  District  of  its 
incorporation  or  origin  to  make  other  or  separate  statements  or 
reports,  or  held  to  be  subject  to  any  visitorial  powers  or  examination 
of  its  business  and  accounts  other  than  such  as  are  authorized  by 
this  Act  or  as  are  within  the  constitutional  rights  and  powers  of  the 
State,  Territory,  or  District  of  incorporation  or  origin. 

305 


Life  Insurance  and  Other  Subjects 

"Sec.  20.  That  every  corporation  transacting  interstate  or 
foreign  insurance  shall,  within  sixty  days  after  the  passage  of  this 
Act,  and  every  corporation  hereafter  formed  shall,  before  engaging 
in  interstate  or  foreign  insurance,  comply  with  this  provision  by 
filing  with  the  said  Comptroller  a  certified  copy  of  its  charter  and  by- 
laws or  deed  of  settlement,  or  other  certificate  of  local  authority  to  law- 
fully transact  insurance  business,  together  with  an  officially  certified 
copy  of  the  last  complete  statement  of  its  condition  and  affairs,  as 
filed  in  the  office  of  the  superintendent,  commissioner  of  insurance, 
or  other  authorized  official  of  the  State,  Territory,  District,  or  nation 
of  its  incorporation  or  origin,  and  a  certificate  under  the  seal  of  the 
proper  officer  of  its  government,  certifying  that  the  said  corporation 
is  duly  authorized,  by  local  authority,  to  engage  in  or  transact  the 
business  of  insurance.  Every  insurance  corporation  transacting 
business  on  the  stock  or  share  plan  shall  cause  to  be  kept  at  all 
times  a  full  and  correct  list  of  the  names  and  residences  of  all  the 
stockholders  or  shareholders  in  the  company  and  the  number  of 
shares  or  certificates  of  stock  held  by  each  in  the  office  where  its 
business  is  transacted;  and  every  insurance  corporation  doing  busi- 
ness on  the  mutual  plan  shall  cause  to  be  kept  at  all  times  a  full  and 
complete  list  of  the  names,  occupations,  and  residences  of  all  the 
trustees  duly  elected  and  responsible  for  the  management  of  said 
corporation.  A  copy  of  such  list,  as  of  the  thirty-first  day  of  De- 
cember of  each  year,  after  December  thirty-first,  nineteen  hundred 
and  five,  verified  by  oath  of  the  president,  vice  president,  or  secretary 
of  the  corporation,  shall  be  transmitted  to  the  Comptroller  of  In- 
surance: Provided,  That  such  list  of  stockholders  or  shareholders 
or  trustees  shall  only  be  for  the  lawful  use  and  information  of  the 
Bureau  of  Insurance,  and  not  for  the  public  inspection,  or  for  the 
information  of  other  stockholders  or  shareholders  or  trustees  of  the 
company,  corporation,  or  association,  as  the  case  may  be.  Every 
corporation,  at  the  time  of  filing  the  copy  of  its  statement  as  afore- 
said, must  deposit  with  the  Treasurer  of  the  United  States,  as  a 
guaranty  for  the  faithful  performance  of  its  contracts  of  insurance, 
United  States  bonds  or  other  securities  satisfactory  to  said  Comp- 
troller, or  as  subsequently  to  be  defined  by  law,  to  the  amount  of 
one  hundred  thousand  dollars:  Provided,  however,  That  the  Comp- 
troller of  Insurance  may  accept,  in  his  discretion,  in  lieu  of  such 

306 


Appendix  D 

deposit,  a  certificate  issued  under  the  seal  of  the  insurance  department 
of  the  State,  Territory,  or  District  of  incorporation  or  origin,  certify- 
ing that  said  insurance  corporation  has  deposited,  under  the  laws 
of  the  State,  Territory,  or  District  of  its  incorporation  or  origin, 
with  the  authorities  of  said  State,  Territory,  or  District,  cash  or 
securities  to  the  amount  of  one  hundred  thousand  dollars  for  the 
protection  of  its  policyholders.  If,  upon  a  careful  and  thorough 
examination  of  the  facts,  as  required  by  law,  and  of  any  other  facts 
which  may  come  to  the  notice  of  the  Comptroller  of  Insurance,  it 
appears  to  his  satisfaction  that  such  corporation  or  association  is 
thereafter  lawfully  entitled  to  transact  the  business  of  interstate  and 
foreign  insurance,  the  Comptroller  shall  issue  to  such  corporation  a 
certificate,  under  his  hand  and  official  seal,  that  such  corporation 
has  complied  with  all  the  provisions  required  to  be  complied  with, 
and  that  such  corporation  is  authorized  to  transact  such  business 
in  any  State,  Territory,  or  District  of  the  United  States.  And  every 
corporation,  before  transacting  interstate  or  foreign  insurance, 
shall  appoint  in  each  State,  Territory,  or  District  in  which  it  proposes 
to  carry  on  business,  other  than  the  State,  Territory,  or  District  of 
incorporation  or  origin,  a  person  on  whom  process  of  law  may  be 
served,  and  a  certified  list  of  such  appointees  shall  be  filed  with  the 
Comptroller  of  Insurance. 

"Sec.  21.  That  whenever,  from  the  statements  and  reports 
herein  required,  or  from  any  other  information,  it  shall  appear  to  the 
Comptroller  of  Insurance  that  the  financial  condition  of  such  cor- 
poration, doing  business  under  this  Act,  is  impaired  or  unsafe,  it 
shall  be  the  duty  of  the  said  Comptroller  of  Insurance  to  order  such 
corporation  to  make  good  its  financial  condition,  and  if  this  be  not 
done  within  sixty  days  after  such  order  is  given,  the  Comptroller  of 
Insurance  shall  revoke  the  certificate  of  authority  to  such  corpora- 
tion to  transact  interstate  business  under  this  Act,  and  public  notice 
thereof  shall  be  given  in  such  manner  as  may  be  prescribed  in  the 
rules  and  regulations  herein  provided  for,  which  information  shall 
also  be  transmitted  to  the  official  charged  with  the  execution  of  the 
insurance  laws  of  the  State,  Territory,  District,  or  foreign  nation 
where  such  corporation  was  organized.  The  securities  transferred  to 
and  deposited  by  any  insurance  corporation,  subject  to  the  provisions 
of  this  Act,  with  the  Treasurer  of  the  United  States,  as  hereinbefore 

307 


Life  Insurance  and  Other  Subjects 

provided,  shall  remain  in  the  custody  of  the  Treasurer  of  the 
United  States  until  all  the  obligations  of  such  corporation  that  have 
arisen  out  of  interstate  or  foreign  insurance  shall  have  been  dis- 
charged or  otherwise  terminated;  and  the  corporation  maintaining 
such  deposit  unimpaired  shall  be  entitled  to  receive  the  interest 
thereon  as  it  accrues.  Whenever  a  receiver  shall  be  appointed  in 
a  court  of  the  United  States,  of  competent  authority,  and  shall  pre- 
sent to  the  Comptroller  of  Insurance  a  duly  certified  copy  of  such 
appointment,  together  with  an  order  of  said  court  for  the  delivery 
to  said  receiver  of  the  bonds  or  securities  held  by  the  Treasurer  of 
the  United  States  as  a  guaranty  for  the  contracts  of  such  corporation, 
in  order  that  they  may  be  distributed  among  the  beneficiaries  in 
accordance  with  the  principles  of  equity  said  Comptroller  shall 
apply  to  the  Treasurer  for  said  securities  and  the  Treasurer  shall 
deliver  them  to  the  receiver  appointed  by  the  court.  If  such  depos- 
itor shall  appear  and  desire  to  be  heard,  the  Comptroller  shall  grant 
a  hearing  to  the  parties,  at  such  time  and  place  as  he  may  limit  and 
appoint,  and  upon  such  hearing  shall  determine  the  question  upon 
which  the  parties  shall  have  taken  issue,  and  from  this  decision  either 
party  may,  within  ten  days,  appeal  to  the  Secretary  of  Commerce 
and  Labor,  whose  determination  shall  be  final  and  conclusive.  It 
shall  also  be  the  duty  of  the  Comptroller  of  Insurance  to  keep  him- 
self advised  of  the  legislation  and  executive  action  of  foreign  nations 
affecting  the  business  of  corporations  transacting  insurance  under 
this  Act  in  foreign  countries,  and  whenever  he  shall  consider  such 
legislation  or  executive  action  to  be  injurious  to  the  business  in  such 
foreign  nations  of  corporations  transacting  insurance  under  this  Act, 
he  shall  lay  all  the  facts  before  the  Secretary  of  Commerce  and  Labor 
for  transmission  to  the  Department  of  State  for  such  action  thereon 
as  will  extend  over  corporations  under  this  Act  all  the  rights,  pro- 
tections, and  facilities  as  are  within  the  power  of  the  Government 
of  the  United  States. 

"Sec.  22.  That  the  Comptroller  of  Insurance  may,  whenever 
he  deems  it  necessary,  call  upon  the  Attorney-General  for  legal  coun- 
sel and  such  assistance  as  may  be  required  to  enforce  the  provisions 
of  this  Act.  If,  upon  examination  or  other  evidence  exhibited  or 
made  known  to  him,  he  shall  be  satisfied  that  any  corporation  trans- 
acting interstate  insurance,  as  defined  by  this  Act,  shall  have  violated 

308 


Appendix  D 

any  provision  of  this  Act,  he  shall  report  the  facts  to  the  Attorney- 
General,  who  shall  institute  proceedings  against  the  same.  Any 
wilful  false  swearing  in  regard  to  any  report  or  statement  of  fact 
required  by  the  provisions  of  this  Act  shall  be  perjury,  and  shall  be 
punished  as  such,  according  to  the  laws  of  the  State,  Territory,  or 
District  in  which  the  corporation  is  incorporated  or  organized;  and 
every  officer,  employee,  or  examiner  of  the  Bureau  of  Insurance  who, 
upon  any  pretence  whatever,  receives  any  fee  or  reward  for  his  ser- 
vices, except  what  is  allowed  to  him  by  law  or  by  the  rules  and  regula- 
tions of  the  Bureau,  shall  forfeit  his  office  and  be  otherwise  punished 
by  the  imposing  of  a  fine  of  not  more  than  five  hundred  dollars  or  by 
imprisonment  for  not  more  than  six  months,  or  by  both.  It  shall 
not  be  lawful  for  any  corporation  or  party  which  has  not  complied 
with  the  provisions  of  this  Act  to  insure  any  risk  or  issue  any  policy 
on  property  of  any  kind  located  beyond  the  limits  of  the  State,  Terri- 
tory, or  District  under  whose  laws  said  corporation  or  party  was 
incorporated  or  organized,  or  upon  the  life  or  lives  of  any  person  or 
persons,  or  upon  contingencies  happening  in  future  to  person,  life, 
property,  or  estate,  where  the  insured  is  not  a  resident  of  the  State, 
Territory,  or  District  in  which  said  corporation  or  party  was  incor- 
porated or  organized;  and  it  shall  not  be  lawful  for  any  person  to 
act  as  agent  or  solicitor,  or  in  any  other  manner,  for  any  corporation 
transacting  business  under  this  Act  until  all  the  provisions  of  this  law 
shall  have  been  complied  with  and  evidenced  by  the  Comptroller's 
certificate  of  authority.  Any  person  or  persons  violating  this  or  any 
other  provision  of  this  Act  shall  be  deemed  guilty  of  a  misdemeanor, 
and  shall,  upon  conviction  thereof  in  any  district  court  in  the 
United  States  within  the  jurisdiction  of  which  such  offense  was 
committed,  be  subject  to  a  fine  not  exceeding  one  thousand  dollars 
for  each  offense. 

"Sec.  23.  That  all  duties  and  powers,  authority  and  jurisdic- 
tion now  imposed  and  conferred  upon  the  Commissioner  of  Corpora- 
tions by  the  Act  of  Congress  of  February  fourteenth,  nineteen  hun- 
dred and  three,  relating  to  insurance  companies,  shall  not  thereafter 
be  imposed  upon  or  exercised  by  the  Commissioner  of  Corporations. 
And  all  Acts  or  parts  of  Acts  inconsistent  with  this  Act,  and  so  far 
as  inconsistent,  are  hereby  repealed;  and  all  books,  papers,  and 
documents    and    correspondence    whatsoever,    now    in    the    office 

309 


Life  Insurance  and  Other  Subjects 

of  the  Commissioner  of  Corporations,  relating  to  the  business  of 
insurance,  shall,  on  demand,  be  delivered  and  transferred  to  the 
Comptroller  of  Insurance,  and  be  and  remain  in  his  charge  and 
custody. 

"Sec.  24.     That  this  Act  shall  be  in  force  from  and  after  its 
passage." 


310 


APPENDIX   E 


Industrial  Insurance  in  Force 

IN 

the  United  States 

ALL  INDUSTRIAL  COMPANIES 

THE  PRUDENTIAL  INSURANCE  COMPANY 

Years 

Ending 

Dec.  31st 

Number  of 
Policies 

Amount 

Years 

Ending 

Dec.  31st 

Number  of 
Policies 

Amount 

1876 

4,8l6 

$           443,072 

1876 

4,8l6 

$           443,072 

1877 

11,226 

1,030,655 

1877 

11,226 

1,030,655 

1878 

22,808 

2,027,888 

1878 

22,8o8 

2,027,888 

1879 

60,371 

5,651,589 

1879 

43,715 

3,866,913 

1880 

236,674 

20,533,469 

l88o 

87,462 

7,347,892 

l88l 

367,453 

33,501,740    | 

l88l 

133,582 

10,959,948 

1882 

590.053 

56,564,682 

1882 

196,007 

15,738,973 

1883 

877,334 

87,793,650  ! 

1883 

273,9!7 

23,053,935 

1884 

1,092,529 

111,115,252 

1884 

324,794 

28,545,189 

1885 

1.377,150 

145,938,241 

1885 

422,671 

40,266,445 

1886 

1,780,372 

198,431,170 

1886 

548,433 

59,328,627 

1887 

2,310,003 

255,533,472  I 

1887 

736,909 

81,694,088 

1888 

2,797,521 

305,155,182 

1888 

850,064 

92,418,854 

1889 

3,365,461 

365,841,518 

1889 

1,099,312 

117,357,415 

1890 

3,883,529 

429,521,128 

1890 

1,228,332 

135,084,498 

1891 

4,319,817 

481,919,116 

189I 

1,360,383 

150,758,907 

1892 

5,200,777 

583,527,016  ; 

1892 

1,653,465 

184,306,206 

1893 

5,751,514 

662,050,129 

1893 

i,94i,533 

218,199,566 

1894 

6,833,439 

800,946,170 

1894 

2,256,014 

259,840,927 

1895 

6,952,757 

820,740,641 

1895 

2,330,741 

268,414,100 

1896 

7,388,119 

888,266,586 

1896 

2,437,251 

279,030,638 

1897 

8,005,384 

996,139,424 

1897 

2,658,700 

303,770,952 

1898 

8,798,480 

1,110,073,519 

1898 

2,924,526 

333,992,200 

1899 

10,050,847 

1,293,125,522 

1899 

3,406,189 

389,039,257 

I90O 

11,219,296 

1,468,986,366 

I900 

3,908,622 

448,596,996 

1901 

12,337,022 

1,640,857,553 

I9OI 

4,290,539 

498,127,133 

1902 

13,448,124 

1,806,890,864 

I902 

4,692,182 

550,464,265 

I903 

14,625,000 

1,965,600,000 

I903 

5.176,456 

6l3,935,9IO 

I904 

15,674,384 

2, 135,859,  IQ3 

I904 

5,642,335 

675,992,239 

I905 

16,872,583 

2,309,754,235 

I905 

6,H7,575 

738,502,100 

1906 

17,841,396 

2,453,616,207 

1906 

6,474,689 

788,261,730 

I907 

18,849,357 

2,577,896,941 

I907 

6,852,793 

840,291,172 

I908 

19,687,675 

2,668,919,696 

I908 

7,258,704 

891,057,438 

311 


APPENDIX    F 

The  following  table  shows  the  present  financial  status  of 
the  Industrial  insurance  companies  of  the  United  States. 
Nearly  all  of  the  Industrial  companies  transact  Ordinary 
insurance  also,  and  the  summary  statistics  of  the  two 
branches  are  therefore  separately  stated. 

Statistics*  of  Industrial  Insurance  Companies  in  the 
United  States  December  31,  1 908 

.....  „    ,.  Industrial 

Industrial  Ordinary  „.  ~    .■ 

and  Ordinary 

Policies  in  force 19,659,868!  1,295,942  20,955,210! 

Amount  of  insurance  in  force  .  12,668,595,294!  11,317,887,524  $3,986,482,818! 

Premium  Income 95,373.691  50,363.260  145, 736,951 

Payments  to  Policyholders    .    .         36,691,216  17,131,338  53,822,554 

Assets 481,545,768 

Liabilities .' 431,845,111 

Surplus 49,700,657 

*  These  returns  are  not  quite  complete,  but  they  are  approximately  so. 

t  In  addition  there  were  27,807  Industrial  policies  in  force,  for  $324,402,  with  five  companies 
which  no  longer  transact  Industrial  insurance. 


APPENDIX   G 


In  the  following  table  is  presented  a  brief  summary  of 
the  Industrial  insurance  in  force  in  the  principal  countries 
of  the  world  on  December  31,  1906.  It  is  conservatively 
estimated  that  at  the  present  time  (1909)  there  are  about 
58,000,000  Industrial  policies  in  force  in  the  world. 

Industrial  Insurance  in  Force  in  the  Principal  Countries 
of  the  World  December  31,  1 906 

„  Number  of  „  ,.  •     *  .  .  * 

Country  „  .  Policies*  Amounts* 

Companies 

Australia 8  351,249  $      35,485-683 

Austria-Hungary io  429,753  27,588,951 

Canada 4  399,36o  43.557,746 

Germany 28  6,244,554  281,263,306 

United  Kingdom 18  26,858,618  1,299,902,319 

United  States 19  17,841,396  2,453,616,207 

Totals 86!  52,096,414  $4,143,314,412 

*  These  do  not  include  the  Industrial  business  of  companies  in  Denmark,  Belgium,  Sweden, 
Switzerland,  and  a  number  of  other  European  countries.  There  is  also  some  Industrial  business  in  force 
in  New  Zealand  and  in  South  Africa,  among  other  countries  and  sections  of  the  world  in  which  the 
business  is  now  transacted. 

t  One  company  operated  in  both  the  United  States  and  Canada. 

312 


INDEX 


INDEX 


Abbott,  Gen.  Henry  L.,  in  favor  of  lock 
canal  project,  243 

Abstinence,  economic  importance  of,  72 

Accident  insurance,  commercial  aspects 
of,  204;  companies  and  Federal  su- 
pervision, 182 

Accounting  system,  life  insurance,  175  ; 
necessity  of  thorough,  in  Industrial 
insurance,  40 

Accounts,  life  insurance,  complicated 
methods  of,  required  by  various  States, 
164 

Actuarial  basis  of  Industrial  insurance, 
20,  39,  40 

Actuarial  department  of  a  life  insurance 
company,  152-3 

Additional  benefits,  Industrial,  69 

Administration,  perfection  of  details  of 
office  and  agency,  Industrial,  107. 108 

Age  75  and  age  80  concessions,  Pru- 
dential Insurance  Co.,  114 

Agency  and  non-agency  companies  con- 
trasted, 106,  107 

Agency  force,  difficulty  of  organizing 
the  Industrial,  41 

Agency  instruction,  life  insurance,  154, 
155 

Agency  organization,  Industrial  com- 
panies, 148 

Agency  system,  Industrial,  69 

Agents,  Industrial,  character  of,  148;  In- 
dustrial, definition  of,  151 ;  Industrial, 
educational  efforts  of,  137 ;  Indus- 
trial, necessity  for,  66,  69, 101, 106;  in- 
surance, and  Federal  supervision.  178; 
life  insurance,  advantages  of,  148;  life 
insurance,  higher  standard  of,  149; 
Ordinary  life,  requisites  for,  148, 149; 
prospects  for,  in  life  insurance,  146 

Alexander,  James  W.,  and  State  super- 
vision, 191 

American  and  foreign  engineers,  relative 
ability  of,  273 

American  experience  and  the  Panama 
Canal,  273 

American  Society  of  Civil  Engineers, 
reference  to,  246 

Ammen,  Admiral,  and  the  Panama 
Canal,  222;  in  favor  of  lock  canal,  256 

Amount,  average,  of  Industrial  insur- 
ance, 65,  66,  147;  average,  of  Ordi- 
nary insurance,  147 

Annuities,  deferred,  Industrial  plan,  un- 
popularity of,  100 


Ansell,  Charles,  treatise  on  friendly 
societies,  30 

Application,  first,  received  by  The  Pru- 
dential Friendly  Society,  1875,  89 

Arkansas,  method  of  insurance  taxa- 
tion, 164 

Assets,  of  Industrial  insurance  compan- 
ies, 76,  77;  of  legal-reserve  life  insur- 
ance companies,  145 

Assistant  superintendent,  Industrial, 
definition  of,  71,  151 

Association  of  Life  Insurance  Presi- 
dents, in  favor  of  uniform  taxation, 
164;  should  resist  efforts  to  increase 
insurance  taxation,  167 

Assurance  associations,  report  of  se- 
lect parliamentary  committee  on, 
1853,  19 

Audit  system,  life  insurance,  175,  176 

Australia,  discussion  of  insurance  of 
children  in,  96,  97;  Industrial  insur- 
ance in,  68,  90,  312 

Austria,  compulsory  state  pensions  in, 
139;  Industrial  insurance  in,  90,  312; 
state-pension  schemes  in,  121 


Bagehot,  Walter,  essay  on  Lombard 
Street,  38 

Bank  charter,  constitutionality  of,  210 

Banking  system,  congressional  control 
of,  212 

Bank  presidents,  opinion  on  Federal 
supervision  of  insurance,  207,  208 

Bankruptcy,  congressional  control  of, 
212 

Banks  for  Savings,  History  of,  by 
Lewins,  86 

Barge  canal.  New  York  State,  a  prece- 
dent for  Panama  Canal,  269 

Bastable,  C.  F.,  on  taxation,  169 

Batterson,  James  G.,  on  State  super- 
vision, 184 

Becher,  Rev.  John  Thomas,  and  South- 
well Society  tables,  30 

Beawes,  Wyndham,  The  Merchant's 
Directory,  213 

Belgium,  Industrial  insurance  in,  312 

Benefits  of  Industrial  insurance,  60,  61 

Benton,  Abridgement  of  the  Debates  of 
Congress,  205 

Blanchard,  Noah  F.,  first  President  of 
The  Prudential  Insurance  Company 
of  America,  1879,  38 


3^7 


Index 


Board  of  Consulting  Engineers,  differ- 
ence of  opinion  of,  regarding  type  of 
canal,  245,  246;  on  the  cost  of  main- 
tenance of  different  types  of  canal, 
253-255;  testimony  before,  272 

Board  of  Engineers  on  Deep  Water- 
ways, report  of,  269 

Bohio  dam,  reference  to,  256 

Books  and  periodicals  on  life  insurance, 
155 

Booth,  General,  reference  to  child  mur- 
der for  insurance,  97,  98 

Boston,  earthquakes  in,  262;  medical 
charities  of,  in  the  70's,  33;  pauper 
burials  in,  36;  Provident  Institution, 
55 

Brooklyn  Bridge  as  a  precedent  for 
Panama  Canal,  269 

Building  and  loan  associations  and  In- 
dustrial insurance,  73,  162 

Bulletin  of  U.  S.  Department  of  Labor 
on  Industrial  Insurance,  96 

Bulwer,  Sir  Henry,  opposition  to  Suez 
Canal,  265,  266 

Bund  system  in  insurance,  28 

Bureau  of  Corporations  and  control  of 
insurance,  289;  of  Corporations  and 
Federal  supervision,  189 

Bureau  of  Insurance,  recommendation 
for,  189,  190,  299 

Burial  Clubs,  England,  19 

Burial  expenses,  average,  for  children 
under  ten,  96;  and  Industrial  insur- 
ance, 65,  75 

Burial  fund,  adult  and  infant,  provided 
by  the  Prudential  Friendly  Society, 
37 

Burr,  Prof.  Wm.  H.,  testimony  in  favor 
of  lock  canal,  228;  in  favor  of  sea- 
level  project,  242 


Canada,  Industrial  insurance  in,  90, 312; 

The  Prudential  in,  115 
Canal,  Isthmian,  consideration  of,  219- 

273;  Panama,   importance  of   fixing 

type  of,  265 
Canal  Zone,  civil  government  of,  228; 

Geo.    W.    Davis   governor   of,    243; 

prices  of  land  in,  254,  255 ;  sanitation 

of,  228 
Canals,  development  of,  in  U.  S.,  203 
Carlyle,   Thomas,  Past    and    Present; 

unsustained    charge    of    murder    of 

children  for  insurance  money,  95 
Central  American  isthmus,  exploration 

of,  220;   various  canal  routes  of,  221 


Chagres  River,  exploration  of,  220;  and 
the  Panama  Canal,  223,  228.  256 

Charity  and  Industrial  insurance,  51, 
74,  75,  91 

Charleston,  S.  C,  earthquake  at,  262 

Chesapeake  &  Ohio  Canal,  experience 
of,  240 

Chicago  Deep  Waterway,  project  for, 
249 

Children,  comparatively  low  death-rate 
of  insured,  78;  insurance  of,  through 
the  post-office,  88;  insurance  of,  by 
Salvation  Army,  97,  98 ;  insurance  of, 
recommended  by  Parliamentary  Com- 
mittee, 97;  insured,  no  positive  evi- 
dence of  murder  of,  for  insurance 
money,  96;  life  insurance  of,  95;  mor- 
tality of,  in  the  70's,  33;  murder  of, 
for  insurance,  no  proved  case  of,  in 
the  U.S.,  98,  99 

Cholera  in  the  United  States  in  the  70's, 
33 

Claim  payments,  average  size  of,  for 
children  under  ten,  96;  Industrial,  59; 
Industrial,  promptness  of,  21,  70,  105; 
life  insurance,  123 

Claims,  infrequent  contests  of,  105 

Clark,  J.  E.,  actuarial  work  of,  for  The 
Prudential  Friendly  Society,  39,  40 

Coast  survey,  congressional  control  of, 
212 

Collectors,  necessity  for.  in  Industrial 
insurance,  66,  108 

Colon,  Isthmus  of  Panama,  and  pos- 
sible flood  waves,  263 

Commerce,  growth  of,  in  U.  S.,  202 

Commercial  aspects  of  insurance,  179, 
180,  188,  190,  193-196,  201-215,  289- 
293,  302;  Alexander  Hamilton  on, 
194-5;  public  opinion  of,  207,  208- 
293;  specific  instances  of  the  recog- 
nition of  insurance  as  an  element  of 
commerce,  213 

Constitution  of  U.  S.,  281;  amendments 
to,  282;  and  State  supervision,  187; 
and  Federal  supervision,  194,  195; 
broad  interpretation  of,  277;  and  cor- 
porations, 283;  and  the  commerce 
clause,  212 

Contract,  Industrial  policy,  description 
of,  69;  improvement  in,  79 

Co-operative  insurance  societies,  in 
U.S.,  25;  failure  of,  88,  89 

Compulsory  insurance  impracticable  in 
the  U.  S.,  106 

Concessions  to  Industrial  policyholders, 
voluntary,  by  The  Prudential,  105 


3* 


Index 


Congress,  appeal  to,  by  life  insurance 
companies,  1865,  for  relief  from  over- 
supervision,  177 

Congressional  acts  seldom  declared  un- 
constitutional, 183,  184 

Conscription  scheme,  constitutionality 
of,  210 

Corporations,  and  the  Constitution,  283; 
business,  development  of,  in  U.  S.,  203 

Cost,  of  Industrial  insurance,  reasons 
for  high,  66,  108,  109;  of  insurance, 
and  Federal  supervision,  189;  of  life 
insurance,  increased  bv  taxation,  163, 
170,  171;  of  State  supervision,  181; 
of  different  types  of  canals,  236,  237, 
238,  239,  246,  247,  253-255,  264,  272 

Credit  insurance,  commercial  aspects  of, 
204 

Culebra  Cut  and  earthquakes,  263 

Davis,  Gen.  George  W.,  in  favor  of  sea- 
level  project,  243 

Death-rates,  decline  in,  New  Jersey, 
98,  99;  Newark,  N.  J.,  99 

Debit,  Industrial,  defined,  71 

Definition  of  Industrial  insurance,  52, 
53,  65,  85,  147;  of  life  insurance,  145 

De  Lesseps,  Ferdinand,  and  the  Panama 
Canal,  222,  223,  224;  and  the  Suez 
Canal,  266;  fatal  error  of,  246,  251, 
273;  visionary  plan  of,  256 

DeMorgan,  definition  of  life  insurance, 
145 

Denmark,  Industrial  insurance  in,  312 

Department  of  Commerce  and  Labor, 
and  Federal  supervision,  189;  estab- 
lishment of,  190 

Department  of  Manufacturers  and  Min- 
ing, suggestions  for  establishment  of, 
190 

Deposit  laws,  passage  of,  by  various 
States,  185 

Dillon,  John  M.,  editor  of  Marshall's 
Complete  Constitutional  Decisions, 
214 

Dependence,  problem  of,  in  old  age,  121 

District  of  Columbia,  method  of  insur- 
ance taxation,  164 

Dividends,  Industrial,  69;  life  insur- 
ance, affected  by  taxation,  170 

Douglas-Lincoln  contest,  277 

Dymond,  Jonathan,  Essavs  on  Morality, 
203 

Earthquakes  and  the  Panama  Canal, 
257, 259-264 


Economic  aspects  of  life  insurance,  139 

Economic  conditions  of  the  masses  in 
the  70's,  35 

Economic  historv  of  the  United  States, 
1870-'79,32 

Economic  importance  of  life  insurance, 
123 

Economic  questions,  importance  of,  in 
U.  S.,  282 

Economic  value  of  Industrial  insurance, 
91,  92;  of  insurance,  194 

Economics  of  Industrial  insurance,  71 

Education,  Industrial  insurance  as  a 
means  of,  42;  public,  in  life  insur- 
ance, 155 

Egypt  and  the  Suez  Canal,  265 

Embargo  act,  constitutionality  of,  210 

Employers'  liability  insurance,  com- 
mercial aspects  ol,  204 

Enforcement  Act,  constitutionality  of, 
210 

England,  state-pension  schemes  in,  121 

Epidemics  in  the  United  States  in  the 
70's,  33 

Equitable  of  London,  slow  progress  of, 
106 

Erie  Canal,  as  a  precedent  for  Panama 
Canal,  269;  favorable  experience  of, 
240,  249,  257 

Ernst,  Col.  Oswald  H.,  in  favor  of  lock 
canal,  243,  256 

Essex  County,  N.  J.,  Industrial  insur- 
ance in,  94,  95 

Examination  of  insurance  companies, 
provision  for,  in  Senate  bill,  304-5 

Exchange  and  Review,  early  reference 
to  need  of  Industrial  insurance  in  the 
United  States,  24;  reference  to  Bund 
system,  28 

Expense  of  State  supervision,  175 

Expenses,  agency,  necessary  and  legiti- 
mate, 107 

Expense-rate,  and  security,  27;  reduc- 
tion of  Industrial,  107 

Experience  the  basis  of  improvements 
in  the  methods  and  practices  of  In- 
dustrial insurance,  103 
Express  companies,  congressional  con- 
trol of,  212 

Extent  of  Industrial  insurance  in  U.  S., 

78,  91,  95 
Failures  of  life  insurance  companies  a 
check  to  life  insurance  progress,  36; 
chargeable  in  part  to  over-supervision, 
182;  in  the  70's,  29;  in  U.S.,  48,  49 
Falkner,  Prof.  Roland  P.,  review  of  his- 
tory of  The  Prudential,  57 


3J9 


Ind, 


ex 


Family  expenditures,  and  life  insurance, 
133;  necessity  for  education  in,  122; 
no  reference  to  life  insurance  pay- 
ments in,  34 

Family  insurance,  benefits  of,  95 

Farmers  and  Mechanics,  failure  of,  48 

Federal  income  tax,  Civil  War,  168 

Federal  insurance  law,  constitutionality 
of,  211 

Federal  regulation  of  interstate  insur- 
ance, desirability  of,  176 

Federal  supervision,  analysis  of  Senate 
bill  for,  296-8;  and  States'  rights, 
187,  192;  benefits  of,  189,  196-7; 
considered  by  U.  S.  Senate,  1868, 
178;  limits  of,  193;  literature  of, 
177 

Federalist,  The,  and  Federal  supervision, 
179,  180 

Fidelity  and  surety  insurance,  commer- 
cial aspects  of,  204 

Fields,  Stephen  Dudley,  and  Federal 
supervision,   194 

Finance  and  taxation,  speeches  and  re- 
ports on,  by  Sherman,  32 

Finance  department,  life  insurance 
company,  152 

Finlaison,  John  Glenn,  analysis  of  sick- 
ness experience  of  friendly  societies, 
30,  31 

Fire  insurance,  commercial  aspects  of, 
203-4;  companies  and  Federal  super- 
vision, 182;  development  of  203-4: 
taxation,  168,  169 

Fiske,  John,  quotations  from,  25 

Fletcher  vs.  Peck,  case  of,  211 

Foraker,  Senator,  233,  234 

Fraternal  insurance,  weakness  of,  27; 
contrasted  with  Industrial  insurance, 
56;  insurance  societies,  failure  of, 
88,  89;  societies  in  the  United  States, 
25 

French  commission  for  survey  of  Isth- 
mus of  Panama,  222 ;  project  for  sea- 
level  isthmian  canal,  223 

Fricke,  Wm.  A.,  in  favor  of  Federal 
supervision,    186,  187 

Friendly  societies,  England,  1850,  19; 
amount  of  insurance  with,  138;  early 
efforts  to  improve,  25,  26;  insurance 
methods  of,  85;  rate  of  mortality 
and  sickness  among,  by  Ratcliffe,  30; 
reference  to,  67:  reference  to  history 
of,  27;  suggestions  for  establishing, 
30;  theory  and  practice  of,  29-31 

Funeral  expenses,  provisions  for,  35 


Galveston,  Texas,  flood  wave  at,  263 

Gamboa  Dam,  consideration  of,  250, 
256,  and  earthquakes,  263 

Gatun  Dam,  consideration  of,  239,  243, 
256;  cost  of,  254;  locks,  248-250 

German  benefit  societies  and  the  Bund 
system,  28 

Germany,  compulsory  system  of  state 
pensions  in,  139;  contrasted  with  the 
United  States  in  the  matter  of  insur- 
ance taxation,  165-6;  imperial  super- 
vision of  insurance  in,  206;  Indus- 
trial insurance  in,  68,  90,  312;  state- 
pension  schemes  in,  121;  taxation 
methods  of,  contrasted  with  those  of 
the  U.  S.,  170 

Gibraltar  and  earthquakes,  262 

Gilds,  reference  to,  67;  dissolution  of 
by  Henry  VIII,  85 

Gladstone,  Wm.  Ewart,  opposition  of, 
to  London  Prudential,  21,  22;  in- 
fluence of,  in  establishment  of  post- 
office  insurance,  22,  47,  86,  87,  97 

Gold  medal  awarded  The  Prudential 
Insurance  Company  of  America,  57, 
114 

Good  roads  and  their  relation  to  life 
insurance,  188,  202-3 

Government  insurance,  England,  22, 
86,  87;  Germany,  definition  of,  102; 
New  Zealand,  101;  premium  rates 
compared  with  private  companies' 
rates,  102 

Grand  prize  awarded  The  Prudential, 
114 

Great  Lakes  canals,  successful  experi- 
ence of,  240 

Great  Western  Ins.  Co.,  failure  of,  29 

Gregson,  Henry,  suggestions  for  estab- 
lishing friendly  societies  and  savings 
banks,  30 


Hadley,  Arthur  T.,  quotation  from,  71; 
quotation  from  Colbert,  167 

Hains,  Gen.  Peter  C,  in  favor  of  lock 
canal,  243,  256 

Hale,  Rev.  Edward  Everett,  on  old- 
age  pensions,  122 

Hamilton,  Alexander,  and  Federal 
supervision,  179,  180;  reference  to, 
283-4;  and  the  commerce  clause  of 
the  Constitution,  194-5 

Hanna,  Senator,  and  the  Panama  Canal, 
226 

Harben,  Henry,  on  the  necessity  for  an 
accounting  system  in  Industrial  in- 


320 


Index 


surance,  40;  witness  before  Royal 
Commission,   26 

Hardvviek,  Charles,  history  of  friendly 
societies,  27,  31 

Harrod,  B.  M.  experience  of,  in  levee 
construction,  24.3;  in  favor  of  lock 
canal  project,  244,  249 

Harvard  University,  presentation  of 
charts  to,  by  The  Prudential,  115 

Hawkshaw,  Sir  John,  opposed  to  sea- 
level  canal,  223 

Hay,  John,  and  the  Panama  Canal,  266 

Haves,  President,  and  the  Panama 
Canal,  222 

Hay-Varilla  treaty,  257 

Hazard  of  Inexperience,  The,  by  Alex- 
ander, 191 

Health,  of  the  people  of  the  United 
States  in  the  70's,  33;  measures  and 
Industrial  insurance,  59 

Heilprin,  Prof.,  on  earthquake  danger 
on  Lsthmus  of  Panama,  261 

Hendriks,  Frederick,  financial  statistics 
of  government  life  annuities,  22 

Higher  education  and  life  insurance, 
154 

Hine,  C.  C,  in  support  of  Federal  su- 
pervision,   178 

History,  early,  of  Industrial  insurance 
in  U.  S.,  74,  85;  of  Industrial  insur- 
ance, first  quarter  century  of,  in  U.  S., 
47-61;  of  The  Prudential  Insurance 
Company  of  America,  reference  to, 
89,  115 

Hoar,  Senator,  reference  to,  278 

Hoffman,  Frederick  L.,  history  of  The 
Prudential  Insurance  Company  of 
America,  42,  89;  The  Life  Insurance 
of  Children,  95 

Holden,  Dr.  Edgar,  on  mortality  of 
Newark,  N.  J.,  33 

Home  ownership  and  Industrial  insur- 
ance, 78 

Hoosac  Tunnel  a  precedent  for  Panama 
Canal,  269 

Housing  conditions  in  the  U.  S.,  280 

Hunter,  Chief  Engineer  of  the  Manches- 
ter Ship  Canal,  opposed  to  lock  canal, 
269;  in  favor  of  lock  canal,  235; 
in  favor  of  sea-level  canal,  268;  his 
request  for  special  committee  to  pre- 
pare sea-level  canal  project,  232 


Idleness,  involuntarv,  prevalence  of,  in 
the  United  States,'  41 


Illinois,  consideration  of  State  insur- 
ance in,  101 

Immigration,  and  life  insurance,  139; 
and  sanitation  in  the  United  States, 
33;  of  English  to  the  United  States, 
and  life  insurance,  25 

Instalment  plan  compared  with  Indus- 
trial insurance,  109 

Income,  life  insurance,  United  States, 
145,  175 

Income  tax,  Civil  War,  168 

Independent,  on  State  supervision  and 
insurance,    182 

Industrial  insurance  agents,  teachers  of 
thrift,  92 

Industrial  Insurance,  and  building-and- 
loan  associations,  73;  and  burial  ex- 
penses, 75;  and  charity,  51,  74,  75,  91; 
and  economic  progress,  51;  and  eco- 
nomics, 71;  and  home  ownership,  78; 
and  General  and  Industrial  insurance 
company,  67;  and  Ordinary  insurance 
compared,  49,  50,  55,  56,  79,  147;  and 
pauperism.  90;  and  penny  provident 
funds,  73;  and  private  wealth,  80; 
and  public  welfare,  59;  and  school 
savings  banks,  73;  and  social  better- 
ment, 80;  and  the  instalment  plan 
compared,  109;  and  thrift  habits,  72, 
91;  and  tuberculosis  prevention,  59, 
60;  an  education  in  other  forms  of 
insurance,  54, 55, 74;  an  effective  form 
of  thrift,  60;  beginning  of,  in  United 
States,  47,  65,  74,  93,  94;  birth  of,  in 
England,  1853, 19, 66;  by  government, 
101 ;  companies,  organization  and  ad- 
ministration of,  147-8 ;  companies  in  the 
Unit  ?d  States,  ordinary  insurance  of, 
138;  comparative  growth  of,  55; 
contrasted  with  fraternal,  56;  con- 
trasted with  post-office  insurance, 
England,  23;  definition  of,  52,  53,  do, 
85,  147;  early  history  of,  in  England, 
67;  early  success  of,  in  England, 
20-23,  89;  economic  benefits  of,  76; 
evolution  of,  79;  extension  of,  in  the 
United  States  in  1880,  49;  extent  of, 
in  United  States,  89, 90, 134, 136;  field 
organization  of  151;  first  issue  of,  in 
England,  20;  progress  of,  92;  in  Aus- 
tralia, 68,  90;  in  Austria,  90;  in 
Canada,  90;  in  Denmark,  90;  in  force 
in  the  United  States,  66,  68,  133, 145, 
31 1 ;  in  the  world,  68, 312 ;  in  Germany, 
68,  90 ;  in  Norway,  90 ;  in  South  Africa, 
90;  in  Switzerland,  90;  in  the  United 
States,  early  reference  to  need  of,  24 ; 


321 


Index 


in  the  United  States,  future  prospects 
of,  60,  61,  80,  136;  intensive  develop- 
ment of,  57,  58,  78,  94,  95;  in  the 
United  States,  progress  of,  since  1879, 
42,  43,  51,  52,  94~  95,  136;  is  public 
wealth,  71, 80;  limitation  of,  32;  organ- 
ization, 151-154;  origin  of,  in  Eng- 
land, 85 ;  policies  and  persons  insured, 
134;  policies  in  United  Kingdom,  68; 
policies  written  by  The  Prudential  in 
1877,  42;  in  1878,  42;  policy  contract, 
evolution  of,  58;  contract,  evolution 
of,  in  United  States,  103;  policy,  6rst 
in  United  States,  47;  popularity  of, 
in  United  States,  103:  progress  of,  in 
civilized  countries,  67-8;  proposal  for 
establishing  in  United  States,  26;  re- 
sults of,  104-5;  results  of,  direct  and 
indirect,  76,  77;  simplicity  of,  104; 
statistics,  United  States.  312;  times 
readv  for,  in  the  United  States  in  the 
70's,"  37;  world-wide,  68,  90 

Industrial-Ordinary  insurance,  53,  68, 
93,  147;  importance  of,  42;  policies, 
average  size  of,  93;  popularity  of,  in 
United  States,  103;  rapid  growth  of, 
137 

Inspector,  life  insurance,  definition  of, 
151 

Insurance,  a  National  interest,  205-6; 
and  conditions  in  the  United  States 
following  the  Civil  War,  29 ;  and  con- 
ditions in  the  United  States,  in  the 
70's,  48;  development  of,  in  the 
United  States,  203;  first  reference  to, 
in  congressional  debates,  205;  inter- 
state, definition  of,  301-2;  need  of 
family,  87;  of  children,  objections  to, 
95 ;  early  references  to  Industrial,  26 ; 
progress  of,  in  United  States,  175; 
the  handmaid  of  commerce,  179  (see 
also  life  insurance) 

Insurance  commissioners  and  Federal 
supervision,  186;  and  uniform  State 
supervision,  181,  187;  and  uniform 
taxation,  164 

Insurance  Monitor  and  Federal  super- 
vision, 177-9;  reference  to  need  of 
Industrial  insurance,  21;  semi-cen- 
tenary of,  19 

Insurance  protection,  minimum  require- 
ments for,  125 

Insurance  taxes,  contrasted  with  colonial 
stamp  taxes,  169  (see  also  taxation) 

Insurance  Times  on  State  supervision, 
181;  on  Federal  supervision,  178 

Insured     and     uninsured    populations 


contrasted,  78,  79;  children,  com- 
paratively low  death-rate  of,  78; 
population,  estimate  of,  in  United 
States,  134 

Intemperance,  prevalence  of,  in  New- 
ark in  the  70's,  34;  in  the  United 
States  in  the  70's,  34 

Intermediate  iusurance,  53 

Internal  improvements,  United  States, 
203;  constitutionality  of,  210 

International  aspects  of  insurance,  206 

International  Assurance  Co.,  London, 
controversy  with  Elizur  Wright,  21 

International  Board  of  Consulting  En- 
gineers, final  report  of,  219;  lack  of 
thorough  consideration  of  the  canal 
project,  231-236,  244;  report  on  choice 
of  type  of  canal,  229,  230 

International  Technical  Commission, 
New  Panama  Canal  Co.,  243 

International  Tuberculosis  Congress, 
The  Prudential  an  exhibitor  at,  60, 
115 

Interstate  commerce  act,  and  Federal 
supervision,  180-1 ;  and  the  Constitu- 
tion, 283 

Interstate  insurance  and  interstate  com- 
merce, 180-1 

Interstate  warfare,  its  effect  on  insur- 
ance, 184 

Investment,  security  of,  and  monthly 
income  policies,  124 

Iroquois  Theatre  disaster,  104 

Isthmian  Canal,  consideration  of,  219- 
273;  the  quick  construction  of,  and 
American  data,  251 

Isthmus  of  Panama  and  earthquakes, 
260-64;  first  railwav  on,  221;  physi- 
cal difficulties  of,  221 ;  route,  223 

Isthmus  of  Tehuantepec,  221 

Isthmian  Commission,  consideration  of 
sea-level  and  lock-canal  projects,  236; 
of  1899-1901,  in  favor  of  lock  canal, 


James,    James   Henry,    Guide   to   the 

Formation     and     Management     of 

Friendly  Societies,  30 
Jamestown    Tercentennial   Exposition, 

The  Prudential  at,  115 
Jay,  John,  and  constitutionality  of  the 

treaty  with  England,  210 
Jefferson,  Thomas,  reference  to,  283 

Kays,  Social  Condition  of  the  People 
in  England,  95 


322 


Index 


Keyes,  E.  W.,  History  of  Savings  Banks, 

60 
Kittredge,   Senator,   and  the  Panama 

Canal,  226,  233-4 
Koren,  John,  report  on  pauperism  in 

almhouses,  91 


Labor  Bureau  of  New  Jersey,  investi- 
gation of  health  conditions,  33 

Lake  Erie  to  the  Ohio  River  Canal, 
project  for,  240 

Lake  Michigan  to  the  Illinois  and  Mis- 
sissippi Rivers  Canal,  project  for,  240 

Lalor,  J.  J.,  146 

Lanouedoc,  Canal  of,  a  precedent  for 
Panama  Canal,  269,  270 

Lapses,  Industrial,  70,  111-113 

Laws,  uniform,  for  insurance,  201 

Legal  department,  of  life  insurance 
company,  152 

Legal  Masterpieces,  by  Veeder,  195 

Legal  reserve  life  insurance  in  U.  S., 
145 

Legislation,  should  be  governed  by 
economic  and  moral  principles,  165 

Les  Mercatoria  Rediviva,  reference  to, 
213 

Levee  construction  in  Louisiana,  245 

Lewins,  Wm.,  History  of  Banks  for 
Savings,  86 

Liens,  Industrial  policy,  58,  70 

License  fees,  insurance,  not  objection- 
able, 161 

Life  insurance,  a  class  institution  in  the 
70's,  36;  and  character,  155:  and 
economics,  123;  and  family  expend- 
itures, 133;  and  social  economy, 
123;  an  institution  developed  sub- 
sequent to  the  U.  S.  Constitution, 
196;  a  public  benefit,  162;  a  volun- 
tary tax,  169;  development,  146;  for 
wage-earners,  imperative  need  of, 
in  the  70's.  37;  future  prospects  of, 
in  U.  S.,  140,  156;  growth  of,  com- 
pared with  other  financial  institutions 
and  statistics,  135,  136;  in  the  U.  S., 
1875,  48;  legal-reserve,  compared 
with  other  forms,  134,  135;  literature, 
155;  management,  150;  origin  of, 
145;  over-taxation  of,  170;  periodicals, 
152,  155;  and  panics,  133:  progress 
of,  in  New  Zealand,  137;  progress  of, 
in  U.  S.,  133,  135,  175,  192;  should 
be  exempted  from  excessive  taxation, 
162;  taxation  of,  161-171;  theory  of, 
145,  146  (see  also  Insurance) 


Light-house  service,  development  of, 
203 

Limon  Bay,  222 

Lincoln,  Abraham,  quotation  from,  78; 
supreme  tvpe  of  human  courage,  277 

Lisbon,  earthquake  at,  262 

Lock  canal,  advantages  of,  over  sea- 
level  canal,  231-2,  237,  238,  241,  242, 
244,  247,  250-2;  and  the  earthquake 
risk,  264;  consideration  of,  224-5; 
consideration  of,  by  Senate  Com- 
mittee on  Interoceanic  Canals,  233; 
cost  of,  238 ;  evidence  in  favor  of,  and 
against,  219;  favored  by  a  minority 
of  International  Board  of  Consult- 
ing Engineers,  230;  favored  by 
American  engineers,  239;  minority 
report  on,  by  Senate  Committee  on 
Interoceanic  Canals,  247;  more  thor- 
ough consideration  of,  by  Inter- 
national Board  of  Consulting  En- 
gineers, 232;  objections  to,  248;  ob- 
jections to,  by  Hunter,  269;  recom- 
mended by  technical  committee,  225; 
thorough  understanding  of,  by  Amer- 
can  engineers,  249;  time  required  for 
building,  238;  weight  of  evidence  and 
opinion  in  favor  of,  241-245,  255,  257, 
270-273 

London  Congress  on  Tuberculosis,  The 
Prudential  at,  59,  60 

London  Life,  slow  progress  of,  106 

Lottery  tickets,  power  of  Congress 
over,  212 

Lull,  Naval  Commissioner,  in  favor  of 
lock  canal,  256 


McCall,  John  A.,  and  State  super- 
vision, 191 

McCardle,  Wm.,  case  of,  and  Federal 
supervision,  194 

McCulloch,  J.  R.,  on  taxation,  168 

McKinley,  President,  reference  to,  278 

Madison,  James,  and  the  declaration 
of  neutrality,  209;   reference  to,  283 

Maine,  loss  of  the  battleship,  104 

Management  of  a  life  insurance  com- 
pany, 150;  should  not  be  by  insur- 
ance commissioners,  191-2 

Manchester  Ship  Canal,  accidents  in, 
248;  experience  of,  240 

Manchester  Unitv  of  the  Independent 
Order  of  Odd  Fellows,  mortality  and 
sickness  experience  of,  30;  history 
of,  31 

Marine  insurance,  development  of,  203 


323 


Index 


Marshall,  Chief  Justice,  and  commer- 
cial aspects  of  insurance,  196;  and  the 
Constitution,  283;  and  the  declaration 
of  neutrality,  constitutionality  of,  209: 
Constitutional  Decisions,  quotation 
from,  214;  judicial  opinion  of,  211; 
on  taxation  165;  quotations  from,  211, 
213 

Martinique,  earthquake  at,  261 

Massachusetts,  Labor  Commissioner  of. 
comments  on  savings  banks  deposi- 
tors, 35 ;  Labor  Commissioner  of,  on 
the  importance  of  life  insurance.  36; 
method  of,  insurance  taxation,  163; 
Metropolitan  Water  and  Sewerage 
Board  244;  non-contributory  state- 
pension  schemes  in,  121;  require- 
ments for  life  insurance  taxation  state- 
ments, 164 

Matachin  and  the  Chagres  River,  223 

Medical  charities,  demand  on,  in  Bos- 
ton in  the  70's,  33 

Medical  departments  of  life  insurance 
companies,  153 

Menocal,  A.  C,  and  the  Panama  Canal, 
222 

Merchant  Marine  Commission,  report 
of,  204 

Metropolitan  of  London,  slow  progress 
of,  106 

Meyer,  Prof.  B.  H.,  reference  to,  56 

Miami  and  Erie  Canal,  experience  of, 
240 

Militia  question,  constitutionality  of, 
210 

Millard,  Senator,  and  the  Panama 
Canai,  226 

Mississippi  River  flood  problem,  243-4 

Missouri  Compromise,  constitutionality 
of,  210 

Monitor,  The,  comments  on  Gladstone's 
government  insurance  measure,  23 

Montana,  requirements  for  annual  life 
insurance  taxation  statements,  164 

Monthly  contributions,  tables  of,  by 
Finlaison,  30 

Monthly  income  policy,  of  The  Pru- 
dential Insurance  Co.  of  America, 
123;  advantages  of,  124;  premium- 
rates,  126-128 

Monthly  instalment  plan  of  claim  pay- 
ments, 123 

Morris.  Corbyn,  on  commercial  aspects 
of  insurance,  195 

Mortality,  of  Newark,  N.  J.,  33;  in  the 
U.  S.  in  the  70 \s,  50;  rate,  Industrial 


compared  with  Ordinary,  110;  rates, 
reduction  in,  51 
Mutual  assurance    societies  for  work- 
ingmen,  29;  vs.  stock  companies,  89 


National  Banking  Act,  1864,  192 

National  banks,  cost  of  supervision, 
192 

National  Bureau  of  Insurance,  bill  for, 
introduced  in  Congress,  1892,  185 

National  Convention  of  Insurance  Com- 
missioners, consideration  of  insurance 
taxation,  167-8 

National  Debt  Office,  reference  to.  31 

National  supervision — see  Federal  su- 
pervision 

Neison,  F.  G.  P.,  contributions  to  vital 
statistics,  30 

Neutrality,  the  declaration  of,  constitu- 
tionality of,  209,  210 

Newark,  N.  J.,  economic  conditions  of, 
in  1875,  39;  high  death-rate  of,  in  the 
70's,  50;  Industrial  insurance  in,  58. 
78,  98;  mortality  of,  in  the  70's,  33; 
organization  of  Widows'  and  Orphans' 
Benefit  Society  in,  1873,  37;  pauper 
burials  in,  36;  intemperance  in,  34; 
the  birthplace  of  Industrial  insurance 
in  America,  39 

Newark  Savings  Institution,  failure  of, 
39 

New  insurance  companies,  organization 
of,  in  the  70's,  20 

New  England,  earthquakes  in,  262 

New  Hampshire,  method  of  insurance 
taxation,  164 

New  Jersev,  extent  of  Industrial  insur- 
ance in,"  57,  58,  78,  136;  Prudential 
policies  in,  95;  introduction  of  In- 
dustrial insurance  in,  93,  94;  investi- 
gations of  health  conditions  in,  33; 
savings  banks  deposits,  in  the  70's;  34 

New  Jersey  Mutual  Life  Insurance 
Company,  fraud  and  mismanagement 
in  connection  with,  39,  48,  94; 

New  Panama  Canal  Company,  243; 
approval  of  lock  plan,  227;  of  France, 
report  of,  225;  rights  of,  purchased 
by  United  States,  226;  technical  com- 
mission of,  235 

New  York  City,  Industrial  insurance  in, 
78;  pauper  burials  in,  35 

New  York  State,  earthquakes  in,  262; 
fair  method  of  insurance  taxation  in, 
170;  extent  of  Industrial  insurance 
in,  78,   136;  Legislative  Committee, 


3H 


Ind 


ex 


investigation  of  The  Prudential  by,  1 16 

New  York  State  Canals,  history  of,  269 

New  Zealand,  extent  and  progress  of  life 
insurance  in,  137;  government  insur- 
ance in,  101;  Industrial  insurance  in, 
312;  state-pension  schemes  in,  121 

Nicaragua,  lock  project  for,  255;  route 
survey  of,  221-2;  and  earthquakes,  260 

Xicaraguan  Canal  Commission  and  the 
earthquake  danger,  261 

Noble,  William,  in  favor  of  lock  project. 
243 

Non-contributory  state-pension  schemes, 
United  States',  121 

North  Carolina,  insurance  taxation,  in 
193 

North  German  Lloyd  docks  fire,  Hobo- 
ken,  104 

Norway,  Industrial  insurance  in,  90 

Nourse,  Prof.  J.  E.,  on  The  Maritime 
Canal  of  Suez,  226,  266 


Ohio,  extent  of  Industrial  msurance  in, 
136;  method  of  insurance  taxation 
in,  163 

Ohio  Canal,  experience  of,  240 

Old  age,  insurance  against  dependence 
in,  early  efforts  in  United  States,  29, 
30;  problem  of,  121 

Old  Guard  organization  of  The 
Prudential  Insurance  Company  of 
America,  41 

Opposition  to  Industrial  insurance, 
early,  20 

Ordinary  insurance  and  Industrial  in- 
surance compared,  147;  and  Indus- 
trial insurance,  relation  of,  55,  56,  79; 
companies,  class  of  risks,  28;  estab- 
lishment of,  by  The  Prudential  In- 
surance Company  of  America,  54,  93; 
field  administration,  150:  in  force  in 
United  States,  133,  134,  145;  in  force 
with  Industrial  companies,  United 
States,  138;  of  The  Prudential  Insur- 
ance Company  of  America,  growth  of, 
93;  office  organization,  151;  policies 
written  in  New  Jersey  in  1876,  41 

Oregon,  voyage  of  the,  around  Cape 
Horn,  225 

Oswego  Canal,  a  precedent  for  Panama 
Canal,  269 

Over-legislation,  176,  177-8,  181,  183, 
185,  186, 191,  193,  196.  206 

Over-supervision,  183,  185,  186,  191, 
193,  196 

Over-taxation,  196 


Palmerston,  Lord,  opposed  to  Suez 
Canal,  265 

Panic  of  1873,  effect  of,  on  insurance, 
28,  29,  32 

Panics  and  life  insurance  progress,  133 

Panama  and  possible  flood  waves,  263; 
earthquakes  few  at,  260-1 

Panama  Canal,  a  business  enterprise, 
268;  choice  of  tvpe  of,  227;  early  his- 
tory of,  220-222;  neutrality  of,  258; 
preliminary  work  on,  228-9;  protection 
of,  in  case  of  war,  257-9 

Panama  Canal  Company,  organization 
of,  224-5 

Panama  Railroad  222;  built  by  Col. 
Totten,  256;  route  favored  by  Senate 
Committee,  226-7 

Paris  Exposition,  1900,  The  Prudential 
at,  57.  114 

Park,  on  Commercial  Aspects  of  Insur- 
ance, 195;  on  insurance  law,  195 

Parliamentary  Committee,  reference  of, 
to  the  need  of  Industrial  insurance, 
19,  20,  67,  85;  report  on  post-office 
insurance,  88;  report  on  Assurance 
Associations,  1853,  19 

Parsons,  Wm.  Barclay,  in  favor  of  sea- 
level  project,  242 

Patents,  congressional  control  of,  212 

Pattison,  John  M..  in  favor  of  Federal 
supervision,  185-6,  188 

Paul  vs.  Virginia  case  and  Federal  super- 
vision, 180,  183,  190 

Pauper  burials,  abhorrence  of,  by  the 
poor,  35,  75;  and  Industrial  insur- 
ance, 90,  91;  increase  of,  in  the 
United  States  in  the  70's,  35;  fre- 
quency of,  in  U.  S.,  34,  50;  reduction 
in,  51,  59,  76,  278 

Pauperism  and  Industrial  insurance,  90 

Paupers  in  almshouses,  census  report 
on,  91 

Payments  to  Industrial  and  Ordinary 
policyholders,  145,  312 

Pennsylvania,  extension  of  The  Pru- 
dential Insurance  Co.'s  operations  to, 
42;  Industrial  insurance  in,  78 

Penny  provident  funds  and  Industrial 
insurance,  England,  73 

Pensions,  old  age,  sold  by  The  Pru- 
dential Friendly  Society,  37;  govern- 
ment, maximum  amount  of,  127; 
State,  121;  State,  definition  of,  122; 
state,  unnecessary  in  U.  S.,  139,  140 

Periodicals  of  life  insurance  companies, 
152 

Philadelphia,  Industrial  insurance  in,  78 


325 


Ind< 


ex 


Pilotage,  development  of,  203 

Plate-glass  insurance,  commercial  as- 
pects of,  204 

Piatt  Bill  and  Federal  supervision,  188 

Policyholders,  direct  personal  interest 
of,  in  tax  problem,  168;  Industrial 
and  Ordinary,  payments  to,  312;  in 
favor  of  Federal  supervision,  183;  in- 
terests of,  menaced  by  over-taxation, 
165;  opinion  of,  respecting  Federal 
supervision  of  insurance,  208;  pay  life 
insurance  taxes,  161 ;  security  of,  in- 
creased by  Federal  supervision,  214, 
215 

Poor,  the,  standard  of  life  and  customs 
of,  75 

Poor  relief,  reduction  of,  by  Industrial 
insurance,  76 

Population,  growth  of,  in  U.  S.,  202; 
increase  of,  in  U.  S.,  and  life  insur- 
ance, 139 

Post-offices,  congressional  control  of, 
212;  increase  of,  in  U.  S.,  203 

Post-office  insurance,  England,  22,  47, 
86;  contrasted  with  Industrial  insur- 
ance, 23;  failure  of,  87;  recommen- 
dation for  insurance  of  children,  97; 
slow  progress  of,  88,  101 

Post-office  savings  banks,  establishment 
of,  in  England.  22,  86 

Post  roads,  congressional  control  of  212, 

Poverty  and  pauperism  in  the  70's,  32; 
problem  of,  in  old  age,  121 

Powers,  implied,  of  the  Constitution, 
282,  284;  resulting,  of  the  Constitu- 
tion, 284 

Pratt,  John  Tidd,  chief  registrar  of 
friendly  societies,  30;  return  of  sick- 
ness experience  of  friendly  societies, 
31 

Premium  income,  Industrial  and  Ordi- 
nary, 312 

Premium  payments,  Industrial,  at  office, 
impracticability  of,  100;  weekly,  147 

Premium  rates,  specimen  of  monthly- 
income  policies,  127 

Premium  receipt  book,  Industrial,  de- 
scription of,  53,  69 

Premium  tables  for  Industrial  insur- 
ance, early,  20 

Premiums,  Industrial,  actuarial  basis 
of,  69;  Industrial,  average  size  of,  100; 
Industrial,  method  of  collecting,  69; 
monthly,  unpopularity  of,  99;  taxa- 
tion of,  excessive,  162 

Pritchard,  Senator,  and  the  Panama 
Canal,  226 


Profit-sharing  methods  of  Industrial 
insurance  companies,  106 

Progress  of  Industrial  insurance,  79; 
of  life  insurance  after  the  Civil  War, 
36 

Proofs  of  death,  Industrial,  70 

Prospectus  of  the  Prudential  Friendly 
Society,  37 

Provident  or  thrift  habits  imperfectly 
developed  in  the  United  States  in  the 
70's,  34 

Prudential  Assurance  Co.  of  London, 
47;  and  Industrial  insurance,  67; 
contrasted  with  Post-office,  88;  con- 
troversy with  Gladstone,  22;  early 
history  of,  20;  early  references  to, 
in  American  insurance  periodicals, 
21;  history  of,  85,  87,  100;  Industrial 
policies  in  force,  1908,  23;  pioneer 
Industrial  insurance  company,  85; 
publicity  methods  of,  24;  progress  of, 
24;  reinsurance  of  the  International, 
21 

Prudential  Friendly  Society,  The,  1875, 
37;  its  early  difficulties,  39;  number 
of  policies  written  in  1876,  41;  organi- 
zation of,  89 

Prudential  Insurance  Company  of 
America,  The,  1877,  37;  an  exhibitor 
at  the  tuberculosis  congress,  London, 
59,  60;  a  stock  company,  89;  date  of 
organization,  66;  early  history  of, 
38-42;  generous  in  its  dealings  with 
its  policyholders,  105;  growth  of,  113; 
History  of,  42,  56,  57;  Industrial  in- 
surance in  force  with,  1876-1908,  311; 
investigation  of,  by  New  York  State 
Legislative  Committee  in  1905,  116; 
management  of,  117;  method  of 
organizing  agency  force,  41;  monthly- 
income  policy  of,  123;  the  pioneer  of 
Industrial  insurance  in  the  U.  S.,  48; 
policies,  extent  of,  in  New  Jersey,  95 ; 
publicity  its  watchword,  115,  116 

Prudential  Mutual  Assurance  Invest- 
ment and  Loan  Association,  organi- 
zation of,  20 

Prussian  government  and  state  super- 
vision, 192 


Railways,  congressional  control  of,  212; 
development  of,  in  U.  S.,  203;  exten- 
sion of,  and  life  insurance,  138 

Randolph,  Isham,  chief  engineer  Sani- 
tary District  of  Chicago,  245 

Randolph,  John,  reference  to,  283 


S26 


Index 


Ratcliffe,  Henrv,  observations  on  the 
rate  of  mortality  and  sickness  existing 
among  friendly  societies,  30,  31 

Real  property,  taxation  of,  not  objection- 
able, 161  ' 

Reclamation  projects  of  the  far  west, 
reference  to,  250 

Relative  cost  of  different  types  of  canals, 
252 

Resumption  of  specie  payment  act,  32 

Republican  Party,  reference  to,  278 

Revivals  Industrial  policies,  70 

Rich  and  poor,  280 

Ripley,  Joseph,  Superintendent  of  "Soo" 
Canal,  245 

Riquet  and  the  "  Canal  du  Midi,"  270 

Risk,  necessity  for  insuring  against,  205 

Rivers  and  harbors  surveys,  congres- 
sional control  of,  212 

Rogers,  Jas.  S.,  and  the  power  of  Con- 
gress over  interstate  and  foreign  com- 
merce, 212 

Roosevelt,  President,  on  Federal  reg- 
ulation of  insurance,  289 

Roscher,  Wm.,  Principles  of  Political 
Economy,  146 

Royal  Commission  on  friendly  societies, 
evidence  of  Harben  before,  40:  in- 
vestigations and  reports  of,  25,  26, 
89;  third  report  of,  reference  to,  40 

Rural  free  delivery  and  life  insurance, 
138 


St.  Lawrence  River  to  Lake  Huron 
Canal,  project  for,  240 

St.  Louis  Exposition,  1904,  The  Pru- 
dential at,  114 

St.  Vincent,  danger  of  earthquake  at.  261 

Salvation  Army  in  England  and  the 
insurance  of  children,  97,  98 

Sanitary  Institute  of  Great  Britain,  gift 
of  Prudential  charts  to,  60 

San  Jose,  Costa  Rica,  earthquakes  at, 
260-1 

Santiago,  naval  battle,  104 

Savannah,  conflagration  in,  204 

Saving  habits,  importance  of  develop- 
ing, 72;  and  Industrial  insurance,  55; 
and  life  insurance,  28,  162 

Savings  banks,  number  of  depositors  in 
U.  S.,  68;  amount  of  deposits  in  U. 
S.,  34;  growth  of,  in  U.  S.,  135;  his- 
tory of,  by  Keyes,  60;  need  of  supple- 
menting by  insurance,  37;  slow  prog- 
ress of,  in  the  70's,  49;  suggestions 
for  establishing,  30 


Savings  institutions  and  their  position 
in  the  70's,  49 

School  savings  banks  and  Industrial 
insurance,  England,  73 

Scientific  training,  value  of,  in  life  in- 
surance adminstration,  154 

Scratchley,  treatise  on  friendly  societies, 
31 

Sea-level  canal,  cost  of,  239;  difficulties 
in  navigation  of,  237;  disadvantages 
of,  247;  evidence  in  favor  of  and 
against:  219;  favored  by  a  majority 
of  the  International  Board  of  Con- 
sulting Engineers,  230;  favored  by 
foreigners,  239,  241 ;  inadequate  rea- 
sons and  arguments  in  favor  of,  273; 
inconclusive  evidence  in  favor  of, 
236;  majority  report  on,  by  Senate 
Commission  on  Interoceanic  Canals, 
247;  opinions  in  favor  of  and  against, 
242-244;  time  required  for,  239 

Security  and  expense-rate,  27;  of  policy- 
holders increased  by  Federal  super- 
vision, 189,  196 

Seismology,  a  complex  branch  of  geo- 
logic inquiry,  263 

Select  committee,  House  of  Commons, 
report  on  sickness  insurance,  1825, 
30;  on  assurance  associations,  report 
of,  1853,  19 

Selfridge,  Admiral,  in  favor  of  lock 
canal,  256 

Seligman,  E.  R.  A.,  on  taxation,  164, 165 

Senate  Canal  Committee  of  1902  and 
earthquake  danger,  260-61 

Senate  Committee  on  Interoceanic 
Canals,  division  of  opinion  of,  219; 
evidence  submitted  to,  239;  majority 
and  minority  reports  on  type  of 
canal,  247;  report  of,  226-7;  testi- 
mony before,  242 

Sherman,  Senator,  on  financial  history 
of  U.  S.,  32;  on  taxation,  168 

Shipwrecks,  decrease  in  number  of,  203 

Slocum  disaster,  105 

Smallpox  in  the  United  States  in  the 
70's,  33 

Smith,  Adam,  on  taxation,  169 

Sickness  among  wage-earners  in  New 
Jersey  in  the  70's,  33;  an  exposition 
of  the  true  law  of,  by  Scratchley,  31 ; 
experience  of  registered  friendly  soci- 
eties, 31 

Sickness  insurance  by  the  Prudential 
Friendly  Society,  37;  by  the  Pru- 
dential Friendly  Society,  discontin- 
uance  of,  40;    early,   in  the  United 


327 


Index 


States,  29,  30;  Industrial,  failure 
of,  in  United  States,  99;  possible  to 
a  limited  extent  through  fraternal 
organizations,  32;  extent  of,  in  the 
United  States  in  the  70's,  33 

Single  premium  payment  insurance,  un- 
popularity of,  99 

Social  aspects  of  life  insurance,  139 

Social  betterment  and  Industrial  insur- 
ance, 80 

Social  economy  and  life  insurance,  72, 
123 

Social  Museum,  Paris,  presentation  of 
Prudential  charts  to,  115 

Social,  etc.,  questions,  importance  of, 
in  U.  S.,  282 

Society  for  the  Diffusion  of  Useful 
Knowledge,  reference  to,  30 

"Soo"  Canal,  accidents  in,  248;  ex- 
perience of,  240,  248,  249,  252,  257 

South  Africa,  Industrial  insurance  in, 
90,  312 

South  Carolina,  requirements  for  annual 
life  insurance  taxation  statements,  164 

Southwell  Society,  reports  on  sickness 
insurance,  30 

Spanish-American  War  and  life  insur- 
ance taxation,  167;  and  the  Panama 
Canal,  225 

Spectator,  The,  reference  to  Federal 
supervision,  188 

Spencer,  Herbert,  quotation  from,  43 

Spinner,  Treasurer  of  U.  S.,  on  Federal 
supervision,  182 

Spooner  Act  and  Panama  Canal,  226, 
257 

Spry,  James,  history  of  the  Odd  Fel- 
lows Manchester  Unity,  31 

Stamp  taxes  contrasted  with  insurance 
taxes,  169 

Standard  of  life,  and  Industrial  insur- 
ance, 92;  in  U.  S.,  280 

State  debts,  assumption  of,  constitution- 
ality of,  210 

State  insurance  unnecessary  in  United 
States,  139,  140 

State  pensions,  non-contributory,  in 
Massachusetts,  121;  no  necessity  for 
in  U.  S.,  122;  objections  to,  122; 
schemes,  for,  121 

State  supervision,  abuse  of,  191;  and 
insurance  commissioners,  187;  an 
impediment  to  the  progress  of  in- 
surance, 180;  complexities  of,  181; 
cost  of,  193;  cost  of,  fully  met 
by  one  per  cent,  of  premium  income 
taxation,  167;   criticism  of,  179,  180, 


181,  182.  184,  186,  187,  191;  Insur- 
ance Times  on,  181;  lack  of  uni- 
formity in,  184;  origin  of,  175; 
should  be  limited  as  far  as  possible 
to  home  State  of  company,  187-8 

States,  new,  organization  of,  constitu- 
tionality of,  210 

States'  rights  and  Federal  supervision, 
179,  187,  192,214 

Statistical  department,  life  insurance 
company,  153 

Steam  navigation,  development  of,  203 

Stearns,  Frederick  P.,  evidence  of,  in 
favor  of  lock  canal,  243,  249;  on  the 
cost  of  maintenance  of  different  types 
of  canal,  253-5 

Stephenson,  Robert,  opposition  to  Suez 
Canal,  260,  266-7,  269 

Stevens,  John  F.,  chief  engineer,  in 
favor  of  lock  canal,  238,  241,  242;  on 
price  of  land  in  canal  zone,  255 

Story  and  the  constitutionality  of  the 
Declaration  of  Neutrality,  209,  210 

Subsistence,  minimum  requirements  of, 
in  America,  125 

Suez  Canal  and  the  Red  Sea  level,  260; 
compared  with  Panama  Canal,  223; 
conditions  of,  different  from  those  at 
Panama,  239;  early  opposition  to,  259; 
foolish  opposition  to,  267-8;  free  navi- 
gation of,  by  international  agreement, 
258;  opposition  to,  by  Lord  Palmers- 
ton,  Sir  Henry  Bulwer,  and  Robert 
Stephenson,  265-267;  successful  ex- 
perience of,  265,  267 

Superintendent,  Industrial,  definition 
of,  71,  151 

Supervision,  Federal,  of  insurance,  and 
Supreme  Court,  180, 183,  194,  212;  a 
national  problem,  201,  215;  advan- 
tages of,  214,  215,  289;  and  States' 
rights,  179,  187,  192,  214;  constitu- 
tionality of,  209;  necessity  for,  206; 
public  opinion  on,  291-293;  public 
opinion  respecting  in  U.  S..  207-8; 
recommended  by  Roosevelt,  289; 
Senate  bill  for,  202 ;  synopsis  of  Senate 
bill  for,  294-5;  text  of  Senate  bill  for, 
299-310 

Supreme  court  and  Federal  super- 
vision, 180,  183,  194;  seldom  a  unit 
in  decisions  on  constitutional  inter- 
pretations of  the  commerce  clause, 
212 

Surplus  to  legal-reserve  policyholders. 
145 

Surrender  value,  Industrial,  69 


3^8 


Index 


Sweden,  Industrial  insurance  in,  312 
Switzerland,    Industrial    insurance    in, 
90,  312;  federal  supervision  of  insur- 
ance in,  206 


Taft,  William  EL,  Secretary  of  War,  on 
the  type  of  Panama  Canal,  238 

Tarbox,  Insurance  Commissioner  of 
Massachusetts,  on  Federal  super- 
vision, 184 

Tariff  laws,  constitutionality  of,  210 

Taxation  and  finance,  speeches  and  re- 
ports on,  by  Senator  John  Sherman 
32 

Taxation,  canons  of,  169;  different 
methods  of,  in  various  states,  163;  ex- 
cessive, 166,  176;  insurance,  and  Fed- 
eral supervision,  189;  of  insurance, 
recommendation  by  National  Conven- 
tion of  Insurance  Commissioners,  168; 
of  life  insurance,  menace  of  further 
increase  in,  167;  recommendation  for 
uniform  premium  tax,  170;  should 
be  limited  to  one  per  cent,  of  pre- 
mium income,  166;  should  be  more 
uniform  and  simple,  164;  of  life  in- 
surance, 161-170;  of  life  insurance, 
increase  of,  to  be  resisted,  167;  of  life 
insurance  in  Germany,  165, 166;  seri- 
ous consequences  of,  165 

Tax  burden  of  insurance  companies, 
193 

Tax  rate,  life  insurance,  increase  of, 
167:  life  insurance,  should  be  re- 
duced, 163 

Taxes,  amount  paid  bv  life  insurance 
companies  (1908),  163  176 

Taxing  methods,  continual  changes  in, 
164 

Technical  committee  for  study  of 
Panama  Canal,  1896,  225;  commis- 
mission,  New  Panama  Canal  Co.,  235 

Telegraph,  congressional  control  of, 
212;  development  of,  in  United 
States,  203 

Telephone,  development  of,  in  United 
States,  203 

Teller,  Senator,  235 

Tenement  house  fire,  Newark,  N.  J., 
104 

Territorial  extensions,  constitutionality 
of,   210 

Texas,  requirements  for  annual  life  in- 
surance taxation  statements,  164 

Three-cent  Industrial  premium,  The 
Prudential,  65 


Thrift  habits  and  Industrial  insurance. 
60.91;  general  lack  of,  among  wage- 
earners,  36;  in  the  United  States, 
statistics  relating  to,  34;  necessity  for 
development  of,  123;  undeveloped 
in  the  United  States,  28 

Totten,  Col.,  in  favor  of  lock  canal,  255 

Trade-unions  and  early  life  insurance 
undertakings,  28 

Travelers'  Insurance  Company,  Presi- 
dent of,  in  favor  of,  Federal  super- 
vision, 182 

Tyler,  Nat,  on  Federal  supervision,  183 


Underwriters  and  Federal  supervision, 
178 

Underwriters'  associations  and  uniform 
taxation,  165 

Uninsured  population  in  United  States. 
134 

United  Kingdom,  Industrial  insurance 
in,  68,  90,  138-9,  312 

United  States  Bank,  constitutionality 
of,  213,  283 

United  States,  contrasted  with  Ger- 
many in  the  matter  of  insurance 
taxation,  165-6;  Deep  Waterway 
Commission,  244;  economic  con- 
ditions of,  in  the  70's,  74;  Industrial 
insurance  in,  312;  Industrial  policies 
in,  68;  life  insurance  conditions  in, 
1868-1872,  26,  27, 74;  progress  of,  and 
Republican  Party,  278-280 

Universal  old-age  pension  system,  New 
Zealand,  121 

University  instruction  in  life  insurance, 
154 


Valuations,  insurance,  provisions  for,  in 
Senate  bill,  304 

Vance,  William  R.,  Handbook  of  the 
Law  of  Insurance,  105 

Veeder.  Legal  Masterpieces,  195 

Views,  a  supporter  of  Federal  super- 
vision, 185,  188 

Vital  statistics,  contributions  to,  by 
Neison,  30;  Hard  wick  on  the  develop- 
ment of,  31 

Voluntary  concessions,  cost  of,  to  The 
Prudential,  105 


Wage-earners  in  United  States,  condi- 
tions of,  280,  281;  seldom  solicited  for 
insurance  in  the  early  70's,  36 


329 


Index 


Wages,  average  annual,  in  New  Jersey, 
35;    classified,  126 

Wagon-roads,  improvement  of,  in  United 
States,  202,  203 

Walford,  article  on  gilds  and  friendly 
societies,  67 

Walker,  Admiral,  in  favor  of  lock  canal, 
256 

Walker  Commission  and  type  of  canal, 
255 

Wallace,  John  F.,  in  favor  of  sea-level 
type  of  canal,  243 

War  provisions,  none  in  Industrial 
policy  of  The  Prudential,  59 

Ward,  C.  D.,  in  favor  of  lock  canal,  256 

Ward,  Edgar  B.,  Counsel  (1884)  and 
Second  Vice  President  of  The  Pru- 
dential Insurance  Company  of  Amer- 
ica (1893),  38 

Ward,  Dr.  Leslie  D.,  Vice  President  of 
The  Prudential  Insurance  Companv 
of  America  (1884),  38 

Washington  and  the  declaration  of  neu- 
trality, constitutionality  of,  209 

Wealth,  distribution  of,  and  Industrial 
insurance,  72,  77;  public,  and  Indus- 
trial insurance,  80;  private,  and  In- 
dustrial insurance,  80 

Weekly  contributions,  tables  for,  30 

Weekly  premium  payment  plan,  value 
of,  recognized  by  Parliamentary  Com- 
mittee, 101;  an  education  in  thrift, 
53,  54,  73 

Weekly  premiums,  Industrial,  average 
size  of,  65 


Welsh,  in  favor  of  lock  canal,  256 

Widows'  and  Orphans'  Benefit  Society, 
organization  of,  in  1873,  37 

Willett's  Point,  reference  to,  262 

Windsor  Hotel  fire,  New  York,  104 

Wisconsin  and  insurance  taxation,  193; 
and  State  supervision,  184-5 

Workingmen,  United  States  and  Eng- 
land, attempts  to  provide  insurance 
for  themselves,  27 

Workingmen's  insurance,  associations 
for,  in  United  States,  25;  England, 
unsoundness  of,  early,  19,  20:  mutual 
assurance  societies  for,  29 

Wright,  Carroll  D.,  on  savings  institu- 
tions, 72,  73 

Wright,  Elizur,  controversy  with  the 
International  Assurance  Companv, 
London,  21;  criticism  of  British  life 
assurance  methods,  21;  in  favor  of 
Federal  supervision,  178;  in  favor  of 
government  insurance,  22 

Wyse  concession,  purchase  of,  223,  224 


Yale  Alumni  Weekly  Supplement,  refer- 
ence to,  191 

Yale  College,  J.  E.  Clark,  professor  of 
mathematics  in,  40 

Yale  University,  course  on  insurance, 
reference  to,  191 

Yellow  fever  in  the  United  States  in  the 
70's,  33 


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